P2 Two students, Cindy and Xavier, are discussinglabour-leisure choice. Cindy says that ifKimberley has upward-sloping labour supplycurve, then leisure must be a normal good forher. If, on the other hand, she is on thebackward-bending part of her labour supplycurve, then leisure must be an inferior good forher. Xavier disagrees: "Normal and inferiorgoods are about income changes, not wagechanges. Therefore, we do not have enoughinformation: for Kimberly, leisure could be aninferior or normal good in either of these cases."Do you agree or disagree? Carefully explain yourpoint of view. Support your argument withgraphs of income, substitution and total effects(please put leisure on the horizontal axis and theother goods on the vertical axis).Please assume that Kimberley's preferences overleisure and other goods are strictly convex andsatisfy "more is better" assumption.

A normal good is one that sees an increase in demand due to an increase in consumer income. In other…

Two students, Cindy and Xavier, are discussing labour-leisure choice. Cindy says that if Kimberley has upward-sloping labour supply curve, then leisure must be a normal good for her. If, on the other hand, she is on the backward bonding part of horlabour supply

Two students, Cindy and Xavier, are discussing labour-leisure choice. Cindy says that if Kimberley has upward-sloping labour supply curve, then leisure must be a normal good for her. If, on the other hand, she is on the backward bonding part of horlabour supply

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Two students, Cindy and Xavier, are discussing
labour-leisure choice. Cindy says that if
Kimberley has upward-sloping labour supply
curve, then leisure must be a normal good for
her. If, on the other hand, she is on the
backward-bending part of her labour supply
curve, then leisure must be an inferior good for
her. Xavier disagrees: "Normal and inferior
goods are about income changes, not wage
changes. Therefore, we do not have enough
information: for Kimberly, leisure could be an
inferior or normal good in either of these cases."
Do you agree or disagree? Carefully explain your
point of view. Support your argument with
graphs of income, substitution and total effects
(please put leisure on the horizontal axis and the
other goods on the vertical axis).
Please assume that Kimberley's preferences over
leisure and other goods are strictly convex and
satisfy "more is better" assumption.

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