IV. Consider an individual with $5000 of annual nonlabor income. She has total available time of 80 hours per week, for 52*80=4160 hours per year. Her current wage rate is $15.00 per hour, and she currently choose to work 2000 hours in a year. (20 marks) a. Draw a labor leisure diagram, carefully illustrate her current labor supply decision. (5 marks) b. The wage rate rises to $18.00 per hour, and she decides to work 2040 hours. At $18.00 per hour, if she worked 2200 hours per year, she would have been indifferent to her original work decision in a). Show her new choice on a diagram, and calculate the income and substitution effects associated with the wage change. Calculate the compensated (the labor supply response based on pure substitution effects only) elasticity of labor supply due to the wage change. (15 marks)

Consider an individual with $5000 of annual nonlabor income. She has total available time of 80 hours per week, for 52*80=4160 hours per year. Her current wage rate is $15.00 per hour, and she currently choose to work 2000 hours in a year. (20 marks) a. Draw a labor leisure diagram, carefully illustrate her current labor supply decision. (5 marks) b. The wage rate rises to $18.00 per hour, and she decides to work 2040 hours. At $18.00 per hour, if she worked 2200 hours per year, she would have been indifferent to her original work decision in a). Show her new choice on a diagram, and calculate the income and substitution effects associated with the wage change. Calculate the compensated (the labor supply response based on pure substitution effects only) elasticity of labor supply due to the wage change. (1 5 marks)