Using the concept of income and substitution effects, explain how you might react to each of the following:
(a) You currently work 20 hours a week at $10 per hour and your employer tells you he must reduce your wage to $8 per hour.
(b) The price of pizza doubles and the price of hamburgers remains constant.
(a) A reduction in the wage rate could either cause hours worked to increase or decrease, depending on whether the income or substitution effect is stronger.
(b) If the price of pizza doubles, the consumer's real income decreases, so the consumer would eat less pizza. Because the price of hamburgers remains constant, the consumer will substitute hamburgers for pizza
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a. True b. False Indicate whether the statement is true or false