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Figure: Income and Leisure Opportunities
-(Figure: Income and Leisure Opportunities)The figure Income and Leisure Opportunities refers to Keisha when she has 100 hours per week for working or leisure.There are two time allocation lines,one for a $10 hourly wage rate and the other for a $20 hourly wage rate.Keisha's optimal choice is point A when the wage is $10,and her optimal choice is point C when the wage is $20.As the amount she earns increases from $10 to $20 per hour,Keisha will work _____ hours because of the income effect.
A) 10 fewer
B) 15 more
C) 25 fewer
D) 50 more

Question

Use the following to answer questions :
Figure: Income and Leisure Opportunities 
-(Figure: Income and Leisure Opportunities)The figure Income and Leisure Opportunities refers to Keisha when she has 100 hours per week for working or leisure.There are two time allocation lines,one for a $10 hourly wage rate and the other for a $20 hourly wage rate.Keisha's optimal choice is point A when the wage is $10,and her optimal choice is point C when the wage is $20.As the amount she earns increases from $10 to $20 per hour,Keisha will work _____ hours because of the income effect.
A) 10 fewer 
B) 15 more 
C) 25 fewer 
D) 50 more

Quizplus · Accepted Answer

The income effect causes Keisha to work fewer hours as her hourly wage rate increases. At the $10 hourly wage rate, her optimal choice is point A where she works 60 hours and has 40 hours of leisure. At the $20 hourly wage rate, her optimal choice is point C where she only works 35 hours and has 65 hours of leisure. Thus, the income effect causes Keisha to work 25 fewer hours ($20 hourly wage rate - $10 hourly wage rate).

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