Calculating the Substitution Effect from the Overall and Income Effects

Dominance of the Income Effect in US Work-Leisure Choices (1900-2020)

Suppose the price of public transportation fares decreases. As a result, a commuter increases their number of weekly trips by 10. An analysis of this behavior indicates that 3 of these additional trips are due to the commuter's increased purchasing power. Based on this information, what is the change in weekly trips resulting purely from public transportation becoming cheaper relative to other forms of travel?

Decomposition of a Price Change Effect

Decomposing the Effect of a Wage Change

If a wage increase leads to a person working 2 fewer hours per week, and the income effect of this wage change is a desire to work 5 fewer hours per week, then the substitution effect must be a desire to work 3 more hours per week.

An individual's hourly wage increases. This change creates two simultaneous effects on their choice between work and leisure: an 'opportunity cost effect' (leisure is now more expensive, encouraging more work) and a 'wealth effect' (higher income allows for more leisure, encouraging less work). Match each scenario describing the relative strength of these two effects to the logical outcome for the individual's work hours.

Comparing Price Effects on Different Goods

A decrease in the price of coffee causes a consumer to buy 8 more cups per month in total. If the substitution effect alone would cause them to buy 12 more cups, then the income effect must account for a change of ____ cups per month. (Enter a negative number for a decrease).

Analyzing the Impact of a Congestion Charge

After a city-wide minimum wage increase, economists observe that the average number of hours worked by affected employees has slightly decreased. Which statement best analyzes this situation using the principles of how individuals choose between work and leisure?

Dominance of the Substitution Effect in the Scenario of Figure 3.13

An economist wants to understand why a consumer buys more of a good when its price falls. To do this, they break down the consumer's total change in behavior into two parts: one part due to the good becoming cheaper relative to other goods, and another part due to the consumer's increased overall purchasing power. Arrange the following conceptual steps in the logical order an economist would follow to perform this analysis.