Use the following figure to answer the question : Figure 17-1 : shows the weekly income (in dollars) and leisure (in hours) of a worker using an indifference curve and a budget line.

-Refer to Figure 17-1.If the number of leisure hours is OL₁ after a change in the wage rate,it implies that:

Question

Use the following figure to answer the question : Figure 17-1 : shows the weekly income (in dollars) and leisure (in hours) of a worker using an indifference curve and a budget line.

-Refer to Figure 17-1.If the number of leisure hours is OL₁ after a change in the wage rate,it implies that:

Quizplus · Accepted Answer

OL₁ represents a movement from point S1 to point U1 after a wage change. Since the worker is consuming more leisure hours at point U1 than at S1, it implies that the substitution effect of the wage change is negative. However, since the worker has moved to a higher indifference curve (to U1 from S1), it implies that the income effect is positive. Therefore, the income effect of the wage change is greater than the substitution effect, leading to the consumption of more leisure hours. Hence, the correct choice is B.

Use the Following Figure to Answer the Question : Figure