Business, 17.03.2020 06:19, Issaking0131

(b) (2.5 points) Suppose that the stock market crashed. Henry’s non-wage income falls and at the same time a reallocation due to family reason lowers his wage rate. More specifically, w = 20 and π = 0. Compute his optimal time allocation and consumption in this case. (c) (1 point) Explain the difference between (a) and (b) using income and substitution effects.

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(b) (2.5 points) Suppose that the stock market crashed. Henry’s non-wage income falls and at the sam...