Question
Two students, Cindy and Xavier, are discussing labour-leisure choice. Cindy says that if Kimberley has upward-sloping labour supply curve, then leisure must be a normal
Two students, Cindy and Xavier, are discussing labour-leisure choice. Cindy says that if Kimberley has upward-sloping labour supply curve, then leisure must be a normal good for her. If, on the other hand, she is on the backward-bending part of her labour supply curve, then leisure must be an inferior good for her. Xavier disagrees: "Normal and inferior goods are about income changes, not wage changes. Therefore, we do not have enough information: for Kimberly, leisure could be an inferior or normal good in either of these cases."
Do you agree or disagree? Carefully explain your point of view. Support your argument with graphs of income, substitution and total effects (please put leisure on the horizontal axis and the other goods on the vertical axis).
Please assume that Kimberley's preferences over leisure and other goods are strictly convex and satisfy "more is better" assumption.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started