Does income effect incentivize person to take less leisure

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Reference no: EM132196976

Question: Draw an earnings-leisure graph when the hourly wage rate is $10 and there are a maximum of 2,000 possible leisure hours.

On your graph, show the combination of earnings and leisure on the $10 per hour wage line, when a person works 500 hours.

Change the wage to $8. From a starting point of 500 hours of work at $10 an hour, does the income effect incentivize the person to take less leisure when the wage rate decreases to $8 per hour? Why? Does the substitution effect incentivize the person to take more leisure when the wage rate decreases to $8 per hour? Why?

Reference no: EM132196976

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