Suppose you win a lottery, and your after-tax gain is $50,000 per year until you retire. As a result, you decide to work part time at 30 hours per week in your old job instead of the usual 40 hours per week.

a. Calculate the annual income effect from this lottery gain based on a 50-week year. Interpret the results in light of the theory presented in this chapter.

b. What is the substitution effect associated with this lottery win? Explain.