Question

William receives $100 in dividends each week. He earns an hourly wage of $20 per hour....

William receives $100 in dividends each week. He earns an hourly wage of $20 per hour. Assume that there are 168 hours available to William each week. William decides to work 42 hours per week at his current wage. When his wage increase to $25 per hour, William elects to work 37 hours per week. Use a diagram to show William’s initial combination of work hours and consumption, his new combination of work hours and consumption after the wage increase, and carefully decompose the change in work hours into substitution and income effects. (Note: for the income and substation effects I am just looking for a sketch of the diagram. So, for example, you will not be able to show me the exact sizes of the income and substitution effects because I did not give you a utility function).

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