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QUESTION 3 (10 Marks) The following information pertains to two individuals: o They are endowed with T=60 hrs/week of leisure e They can earn a
QUESTION 3 (10 Marks) The following information pertains to two individuals: o They are endowed with T=60 hrs/week of leisure e They can earn a wage of $7.50 per hour. e They are only allowed by their employers to work either 40 hrs/week or not at all. a) (5 Marks) Sketch the potential income constraint below and sketch the equilibrium for: Worker A: His optimum labour supply is 40 hrs/weeck Worker B: Would like prefer to work 20 hours, but still prefers the option of 40hrs/week to not working. Compare the marginal rates of substitution for both these individuals at 40 hrs/week. b) (5 marks) The average part-time wage is $7 per hour, in contrast to $7.50 per hour for full- time workers. Using the model from part a), provide an explanation for this difference in wage rates
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