SE_IE_disentangle

# SE_IE_disentangle - Disentangling the SE and the IE in one...

This preview shows pages 1–2. Sign up to view the full content.

Disentangling the SE and the IE in one Diagram 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 increases to W2 and the SE dominates the IE. On one graph with income on the vertical axis and leisure on the horizontal axis, graphically depict the IE by itself and the SE by itself in this situation. SE change in hours worked resulting from change in wage, holding utility constant change in H resulting strictly from increase in wage holding utility constant- make individual no better/ no worse off after the wage increase as before (ie- same indifference curve) how to depict SE by itself? need to draw imaginary budget constraint (dotted line) #1) imaginary BC is parallel to BC2 (reflects change in wage from w1 (BC1) to w2 (BC2)) #2) imaginary BC is tangent to IC1 (on same IC- utility is held constant) SE: A→ B (L1→Ls) / ↑W, ↑H, ↓L IE change in hours worked resulting from change in income, holding wage constant

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 7

SE_IE_disentangle - Disentangling the SE and the IE in one...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online