What the market wage and the shadow wage measure

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Reference no: EM131000890

The graph below, with the market wage (W) and the shadow wage (W*) on the vertical axis and hours of market work (Hw) on the horizontal axis, is meant to represent the labor supply situation of two different women with identical preferences but with access to different market wage rates (W1 and W2).

a. Briefly explain what the market wage and the shadow wage measure, explain the concept of the reservation wage (Wr), and identify the reservation wage on the graph.

b. In addition, show on the graph the equilibrium points that identify equilibrium hours of work for each woman (Hw1* and Hw2*).Note the relationships between the market wage, the shadow wage, and the reservation wage for each woman at her equilibrium point.

Reference no: EM131000890

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