Sally

, a

college

student at

Washington University

,

earns $10 pe

r hour working at

Crazy Mocha.

Her parents

also give her $100 per week to

help with expenses. Lately,

Sally's parents have been concerned about her grades and want her to spend less time at

work and more time studying. In order to encourage Sally to spend less time at work, her

parents consider

t

wo

possibilities

:

Plan A: Re

duce her weekly allowance by $2 for every hour that she works.

Plan B: Increase her weekly allowance from $100 to $200 per week.

a.

(8 pts.)

Given that there are 16

8

hours in a week, sketch Sally's weekly budget

constraint

be

fore and after

the implementat

ion of Plan A

.

Label the x

-

axis, the y

-

axis, the x

-

intercept, the y

-

intercept, the slope and the endowment point.

b.

(8 pts.)

Given that there are 168

hours in a week,

s

ketch Sally's budget constraint

before and after

the imple

mentation of Plan B. Label the

x

-

axis, the y

-

axis, the x

-

intercept, the y

-

intercept, the slope and the endowment point.

c.

(9 pts.)

Which plan is guaranteed to reduce the number of hours that Sally spends at

work each week? Your answer should include a clea

r discussion of the income eff

ect

and the substitution effect associated with

each

policy. No graph is necessary.