Assuming we have a choice where we work and how many hours we want to work, what determines the number of hours we will work? Marginal changes in our opportunity cost (utility) of leisure as income increases (the substitution effect) Marginal changes in the utility of our income as total income changes (the income effect) It is based on how much money we need to meet our basic needs A combination of A and B

Assuming we have a choice where we work and how many hours we want to work, what determines the number of hours we will work? Marginal changes in our opportunity cost (utility) of leisure as income increases (the substitution effect) Marginal changes in the utility of our income as total income changes (the income effect) It is based on how much money we need to meet our basic needs A combination of A and B

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 20SQ

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• Sam enjoys leisure time and money, which comes from working. • Sam has 16 non-sleeping hours in a day to work with. • Sam earns $10 per hour while working. Sam gets 1 unit of utility out of each dollar earned. • Sam gets 20 units of utility from the first hour of leisure, 18 units from the second, 16 units from the third, etc. What kind of budget constraint should we draw to analyze Sam's decision of how much to work? How many hours should Sam work to get as much utility as possible? How many hours should Sam devote to leisure to get as much utility as possible?
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Assume you can work as many hours you wish at £12 per hour (net of tax). If you do not work, you have no income. You have no ability to borrow or lend, so your consumption, c, is simply equal to your income. Assume that your optimal choice of consumption and leisure is to work 8 hours per day. Illustrate this choice diagrammatically using the feasible set and indifference curves.
Suppose that the cost of living increases, thereby reducing the purchasing power of your income. If your money wage doesn’t increase, you may work more hours because of this cost-of-living increase. Is this response predominantly an income effect or a substitution effect? Explain. with simple example
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Consider a couple (a husband and a wife) that jointly represents their collective preferences between combinations of household production time (X) and purchased goods and services (Y) according to the formula W = X2Y, where W represents the level of welfare. Suppose the maximum time available in a day is 16 hours and currently the wife devotes 6 hours to market work (H) at a wage of $16 per hour. a. What is the level of welfare associated with the wife’s current situation? b. How much additional purchasing power would the wife contribute if her market work hours increased to 8? c. How much of an increase in purchased goods and services would be necessary to compensate for the additional 2 hours of lost household production? d. Should this couple choose to have the wife increase her market work by 2 hours? e. If this couple is raising a child, suppose that combinations of household production and purchased goods are now ranked according to the formula U = X3Y. Would the additional 2…
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