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Income and substitution effects

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A family has a target of $1500 for the income that it needs to earn each week. Both adults in the family work at flexible jobs where they have a choice over how many hours to work. They decide that the relative number of hours the should work should be equal to the ration of their hourly wage rates. The female earns $20 and hour and the male $15. How many hours does each of them work? What happens when the female gets a 20% wage rise to $24 an hour? What happen if both adults get a 20% pay rise? What does this imply about their income and substitution effects?

Reference no: EM131253719

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