Q) During the year 1600, the average British worker was at work for 266 days. After the Industrial Revolution, wages began to rise, and working time rose too: to 318 days in 1870.

Meanwhile, in the US, hours of work increased for many workers who shifted from farming to industrial jobs. In 1865 the US abolished slavery, and former slaves used their freedom to work much less. From the late nineteenth century until the middle of the twentieth century, working time in many countries gradually fell.

Suppose that hourly wage rate for employees in the US rose from $30 in 1900 to $200 in 2013 and the maximum number of hours of labor or leisure remain at 24. Also suppose that the hourly wage rate for employees in the rest of the world rose from $20 in 1900 to $180 in 2013. On two separate graphs, show the change in budget constraints considering the case of US and the rest of the world.

For the US, draw two indifference curves corresponding to the change in wage rate, the first indifference curve is tangent to the budget constraint of 1900 at 12, 360. Call this A. The second indifference curve is tangent to budget constraint of 2013 at 16, 3200. Call this B. Mark A and B on the graph and show the corresponding substitution and income effects. Which effect is stronger? Explain.

For the rest of the world, draw two indifference curves corresponding to the change in wage rate, the first indifference curve is tangent to the budget constraint of 1900 at 10, 200. Call this C. The second indifference curve is tangent to the budget constraint of 2013 at 15, 2700. Call this D. Mark C and D on the graph and show the corresponding substitution and income effects. Which effect is stronger? Explain.