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Unformatted text preview: Explain. (3 points) #5) Suppose an individual has no non-labor income. Originally the individual works some positive number of hours when the wage equals W1. Suppose now that the wage falls to W2 and the income effect dominates the substitution effect. On one graph with income on the vertical axis and leisure on the horizontal axis, graphically depict the income effect by itself and the substitution effect by itself in this situation. State the separate effects the income effect and the substitution effect will have on labor supply when the wage falls. What will be the overall effect of the wage decrease on this individuals labor supply? (Use the method we used in class to solve this problem.) (10 points)...
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This note was uploaded on 03/30/2008 for the course PAM 2040 taught by Professor Lewis during the Fall '07 term at Cornell University (Engineering School).
- Fall '07