1. Suppose you have 16 hours per day available for work, and your wage rate is $10 per hour in the years 2011 and 2012. In 2011, you work eight hours per day. In 2012, you win the lottery, and your after-tax gain is $150 per day until you retire. As a result, you decide to work six hours per day instead of the usual eight hours per day.
2. a) Draw your daily budget constraint for 2011 and 2012, and indifference curves consistent with your work preferences. Label everything, including your income in 2011 and 2012.
3. b) What is the income effect associated with this lottery win? Explain.
4. c) What is the substitution effect associated with this lottery win? Explain.