How does the change in the pay plan affect her total

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Reference no: EM133422818

Question: Income and Substitution Effects. Sabrina works for a workers' cooperative that initially pays her a lump sum of $200 per week (as long as she works at least 15 hours per week) and a wage of $20 per hour of work. She initially works 40 hours per week. Suppose the cooperative changes its pay plan by increasing the lump-sum payment to $280 and decreasing the hourly wage to $18.

a. If Sabrina continues to work 40 hours per week, how does the change in the pay plan affect her total income?

b. Use the concepts of the income and substitution effects to predict whether Sabrina will work more hours, fewer hours, or the same number of hours. (Hint: Is there an income effect to consider?)

Reference no: EM133422818

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