Will is paid $10 an hour for the first 40 hours per week that he works.He can also work as many hours overtime as he wishes to.He is paid $15 an hour for every hour that he works beyond 40 hours a week.Leisure is a normal good for Will and he is currently working some overtime.If his hourly wage for the first 40 hours per week that he works rises to $12 and his wages for overtime remain at $15 per hour, he will choose to work
A)fewer hours per week.
B)more hours per week.
C)the same number of hours per week.
D)more hours per week if and only if his income exceeds his labor income.
E)more hours per day if and only if he works less than 20 hours overtime per week.

Question

Quizplus · Accepted Answer

When the wage for the first 40 hours increases, the substitution effect makes leisure more expensive relative to work, encouraging more work hours. However, the income effect, given leisure is a normal good, means Will can afford more leisure with the same work effort, potentially reducing work hours. Since Will is already working overtime, the higher wage for the first 40 hours increases his income, allowing him to afford more leisure without working extra hours. Thus, he might choose to work fewer hours overall, prioritizing leisure now that he earns more in less time.

Will Is Paid $10 an Hour for the First 40