Answer to Question #251289 in Microeconomics for queen

Question

A consumer faces a trade-off between labor and leisure. Suppose the consumer receives a raise and starts earning a higher wage. Based on the Slutsky equation, the substitution effect with respect to leisure due to this change is -18.00. However, due to the change in income, his consumption increases by 1.00 units. If this consumer can work or rest a maximum of 24 hours, how many hours must he have been working if this change in his wage doesn't lead to a change in his hours worked?  

Answer 1

Since leisure is considered to be an interior good

Total effect (TE) $=$ Substitution effect (SE) $+$ Income Effect (IE)

TE $=$ $-$ 18 $+$ 1

TE $=$ $-$ 17

Total effect is also equal to the initial time the consumer worked

Nineteen (17) hours