Check Your Understanding

1. Question

   Formerly, Clive was free to work as many or as few hours per week as he wanted. But a new law limits the maximum number of hours he can work per week to 35. Explain under what circumstances, if any, he is made

   1. worse off.

   2. equally well off.

   3. better off.

2. Question

   Explain in terms of the income and substitution effects how a fall in Clive’s wage rate can induce him to work more hours than before.