Amy has two jobs, one for the winter and one for the summer. In the winter, she works as a tour guide at a crocodile zoo and earns $25 an hour. During the summer, Amy works as an English tutor and earns $20 an hour.Refer to the information provided. Assume that Amy has an upward-sloping labour supply curve. If the opportunity cost of Amy’s leisure time decreases, she will respond by:

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BlackTom AI · Accepted Answer

Let’s restate the scenario to make sure we’re on the same page: Amy faces two jobs with different wages (winter $25/hour, summer $20/hour) and is assumed to have an upward-sloping labor supply curve. The question asks what happens when the opportunity cost of leisure time decreases.

First, consider what "opportunity cost of leisure" means in this context. It is essentially the wage rate—fewer foregone earnings per hour of leisure means leisure becomes cheaper to consume. A decrease in this opportunity cost is the same as a decline in the wage.

Now, with an upward-sloping labor supply curve, higher wages lead to more hours worked (substitution effect dominates). Conversely, a fall in the wage makes leisure relatively cheaper and work relatively less attractive, so the substitution effect pushes Amy to substitute leisure for work, reducing hours worked along the upward-sloping schedule.

Reasoning for the given option:
- Option: "Working fewer hours" aligns with the intuition that a lower opportunity cost of leisure lowers the incentive to supply labor, so Amy would choose fewer hours to enjoy leisure at a lower cost.

Why this reasoning excludes working more hours or no change:
- If the opportunity cost decreases (wage falls), the substitution effect would not push Amy to work more hours; that would require a higher wage or a different preference structure. Since the question pins us to an upward-sloping supply curve, the direction of the response to a wage decrease is to reduce hours, not increase them.
- The scenario does not point to any other mechanism (like a demand shift or income effect reversal) that would make her work more hours when the wage falls, so those alternatives aren’t supported by the given information.

In sum, lowering the opportunity cost of leisure makes leisure comparatively cheaper relative to work, and with an upward-sloping labor supply curve, the natural response is to cut back on hours worked, i.e., she will work fewer hours.

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