1.Draw indifference curves for leisure-income choice:

a)Explain why indifference curves are downward sloping and convex to the origin.

b)Explain how the shape of indifference curve reflects individual's preferences.

2.Show and explain the effect of following events on the budget line:

a)A change in income tax rates

b)An increase in welfare payments

c)An increase in return to investment

3.Draw a labour supply curve. Explain why an individual's labour supply curve is typically backward bending.

4.Indicate in each of the following instances whether the specified circumstances will cause a worker to want to work more or fewer hours:

a. The wage rate increases and the substitution effect is greater than the income effect.

b. The wage rate decreases and the income effect is greater than the substitution effect.

c. The wage rate decreases and the substitution effect is greater than the income effect.

d. The wage rate increases and the income effect is greater than the substitution effect.