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1. How does an increase in wage rate change the optimal consumption-leisure combination chosen by the worker? State income effect and substitution effect.

2. Suppose the government grants $1000 to women who are completely out of the labor force. If this eligible woman gets a job in labor market, government takes away 50 cents from the cash grant for every dollar earned by the woman. Wage rate in labor market is $10 per hour. How does this welfare program create work disincentives for women?(hint: compare optimal choice before and after the program being effective)

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