- 5 Consumer Choice A Worker Earns 15 Pounds An Hour And Chooses To Work Six Hours A Day The Worker Has No Other Source 1 (77.57 KiB) Viewed 63 times
5. Consumer choice A worker earns £15 pounds an hour and chooses to work six hours a day. The worker has no other source of income. For the question below, assume that the worker has “standard” Cobb- Douglas preferences. When considering wage changes, assume that the income effect” outweighs the "substitution effect". (a) Write down the worker's budget constraint and then represent the worker's choice in a suitably labelled graph. [5 Marks] (b) The government gives the worker £80, but taxes the worker's wage, such that their take-home wage is £10. Model this policy in a suitably labelled graph. Is the worker better off (in terms of utility) after this policy? Note-there are a range of correct answers for the worker's new hours/income. Choose one that is consistent with the information given in the question. [5 Marks]