Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

98 CONSUMER DEMAND THEORY [CHAP. 4
income of $450 and 10 h of leisure per week (point B) and an income of $200 and 40 h of leisure
(point A). However, with the same 40 h of leisure and an income of $400, the individual would be at
point G on indifference curve IV. (a) What is the wage rate, as indicated by the lowest incomeleisure
constraint line in panel A? The middle income-leisure line? The highest income-leisure line?
(b) How many hours of work per week will the individual choose at each wage rate? (c) If after
working 40 h per week at a wage of $5 per hour the individual is offered an overtime wage rate of
$10 per hour, how many additional hours will the individual work?
(a) The wage rate (W) is always given by the slope of the income-leisure constraint line. The lower line
in panel A indicates that if the individual works 80 hours per week for a weekly salary of $400 or
40 h for $200, then
Similarly, with the middle line,
Finally, with the top line,
W ¼ $400
80 h ¼ $200 ¼ $5 per hour
40 h
W ¼ $650 ¼ $8:125 ffi $8:13 per hour
80 h
W ¼ $800 ¼ $10 per hour
80 h
Fig. 4-34
(b) In Fig. 4-35, the indifference curves of panel B in Fig. 4-34 are superimposed on the income-leisure
lines of panel A. At W ¼ $5, the individual is in equilibrium at point A by working 40 h per week
for a weekly salary of $200 and using the remaining 40 h per week for leisure. At W ffi $8.13, the individual
is in equilibrium at point F and works 50 h per week for a weekly salary of $400. At W ¼ $10,
the individual is in equilibrium at point G and goes back to working 40 h per week for the same weekly
salary of $400. Thus, at the very high W ¼ $10, the individual prefers more leisure to more work and
the individual’s supply curve for work slopes backward.