Explain the concept of a reservation wage

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a. Mr. Dilatoriness has a PhD in economics, but is happily unemployed; he spends most of his time reading classical literature, art and philosophy. He gets $ 3000 a week from his parents. His parents tired of his indolence, decide to cut down his weekly payment by 33.33% and ask him to join the family business at a wage rate of $ 20 an hour. Construct an income-leisure diagram showing Mr.Dilatoriness’ situation before and after. Under what circumstances would Mr. Dilatoriness maximize his utility? (Evaluate all possible income-leisure combinations under both scenarios)

b. Explain the concept of a reservation wage? Under what circumstances will the reservation wage be Negative? Give an example or draw an Income-leisure IC diagram.

Reference no: EM131244416

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