Answer to Question #321104 in Microeconomics for Ankit

Question

Radha is awake for 100 hours in a week. She is earning Rs.1200 per week by working for 60 hours. This year she gets a

scholarship of Rs.500 per week and hercompany also raises her wage to Rs.40 per hour. Analyze the impact of this

change in her income & on her labor supply.

Answer 1

Radha's income increases.

Assuming that she works for the same 60 hrs a week then her wage will increase from $1200$ to $2400$ Rs plus the stipend of Rs 500 from her scholarship. This amounts to Rs $2900$ per week. However leisure is a normal good and therefore its demand rises due to the increased income. The impact of this on the supply of labor is that the supply curve shifts inward because Radha will work for fewer than before.