1. Use isocosts and isoquants to demonstrate the effect on the demand for labour of a fall in the wage rate. Clearly indicate both substitution and output effects and accompany your graph with a written explanation.
2. Draw a large diagram showing a budget constraint and indifference curve for three different wage levels, such that it can be used to derive a backwards-bending labour supply curve. For each of the two increases in the wage level, clearly indicate the income and substitution effects, noting which is larger in each case.