Question

14. Betty consumes leisure and food and both are normal goods. a. Show graphically what would happen to the number of hours that Betty will work if she sees an increase non-labor income. b. Show with a graph and explain how Betty’s hours worked can decrease if she sees an increase in wages.

Answer 1

a) Betty has resource constraint and that is time. She prefers to have a balance between her work and leisure time according to her utility. Now she will use the time to earn an income and will spend the rest of the time for leisure. If her non-labor income rises then her overall income will also rise and she will cut back the time she works and prefer to have more time for leisure.

b) Betty her resource that is time between her work and leisure. Either she can work all the time and have no leisure at all which will earn her maximum income. On the other hand, she can have all her time for leisure and no income at all.
However, she will choose something in the middle of that according to her utility. Now if the wage rate increases then she can choose to work less, work more or work at the same hours as per earlier choice.
If she has more preference for leisure and enough utility from her current income level then according to the backward bending curve of labor, she will choose to work less for any increase in wage level.