Q: Dee and Charlie are both bartenders in the Philadelphia labor market. When the wage rate increases from $10 per hour to $15 per hour Dee responds by working more hours and Charlie responds by working less hours. Which of the following must true?

i. For Dee the income effect of the wage increase was greater than the substitution effect of the wage increase.

ii. For Dee the substitution effect of the wage increase was greater than the income effect of the wage increase.

iii. For Charlie the income effect of the wage increase was greater than the substitution effect of the wage increase.

iv. For Charlie the substitution effect of the wage increase was greater than the income effect of the wage increase.

1. Both ii. and iii.
2. Both ii. and iv.
3. Both i. and iii.
4. Both i. and iv.

Q: The graph below shows a worker's budget constraint. The worker is paid a straight hourly wage. Use the graph to answer questions 1 to 4.

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