While in his senior year of college, Simon interns at JP Morgan, an investment b

Question

While in his senior year of college, Simon interns at JP Morgan, an investment bank headquartered in New York. He earns a decent wage, but works only a few hours a week. After graduating, he is hired full-time and given a substantial raise, but his new position requires him to work more hours per week. Please use the below graph of Simon's individual labor supply curve to answer the following questions. 100 90 80 70 What principle is illustrated by Simon's individual labor supply curve? Full Time age (S/Hour) A) 60 50 ft in the Labor Supply Domination of the Substitution Effect The Efficiency-Wage Model Domination of the Income Effect O O 40 30 9 20 10 What inherent conflict is demonstrated by Simon's Internship employment situation? OSupply vs. Demand O Physical Capital vs. Human Capital 0 10 20 30 40 50 60 70 80 90 100 Hours Worked per Week Labor vs. Leisure O Efficiency vs. Equity

Explanation / Answer

The principle illustrated:

Domination of the substitution effect (more labour is supplied as the wage rate is increased, labour is substituted for leisure)

Inherent conflict:

Labour vs Leisure (Simon needs to choose between labour and leisure and allocate his time between these two to maximize his utility)

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