Mia and Leo have identical utility functions, defined over consumption, c, and leisure, l. They also have the same amount of non-labour income. As in class, assume leisure is a normal good. Despite this, Mia works more hours than Leo.
Which of the following could explain this scenario?

Question

Mia and Leo have identical utility functions, defined over consumption, c, and leisure, l. They also have the same amount of non-labour income. As in class, assume leisure is a normal good. Despite this, Mia works more hours than Leo.

Which of the following could explain this scenario?

Answer

Mia’s wage is higher than Leo’s, and the substitution effect of the higher wage dominates the income effect.

Answer

The income effect from the non-labour income is very large

Answer

The substitution effect and the income effect exactly offset one another

Answer

The  income effect from the non-labour income is very small

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Mia and Leo have identical utility functions, defined over consumption, c , and...

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