EC111Class8Answers

EC111Class8Answers - UNIVERSITY OF ESSEX DEPARTMENT OF...

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UNIVERSITY OF ESSEX Autumn Term 2011/12 DEPARTMENT OF ECONOMICS T Hatton EC111 Class Exercise 8: Outline Answers 1) a) Hours of work, measured from the right, is 36 originally and 38 after the wage change Income is ₤288 before the wage change and ₤380 after the wage change. b) Slope – 10 Slope – 8 380 288 Liesure 38 36 hours 76 380 288 Leisure 40 38 36 hours
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₤324. If she is just as well off as she was initially we know that this point is just tangent to the old indifference curve. The substitution effect is to increase hours of work by 4 (from 36 to 40). The income effect is the shift from the dotted budget line to the new budget line, reducing hours of work from 40 to 38. So the income effect is – 2 hours. c) Labour supply (the supply of hours of work) is now measured from left to right. The supply curve is upward sloping as the wage increase and hours of work increased. The elasticity of labour supply is 22 . 0 8
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EC111Class8Answers - UNIVERSITY OF ESSEX DEPARTMENT OF...

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