Continued from the previous question. After getting laid off, Henry applies and receives unemployment of $200 per week. This moves his budget line to [Select] While receiving unemployment each week, he is on [ Select ] indifference curve. If restaurants were allowed to reopen and Henry was offered his old job back, he would [ Select ] because going back to work would move him to a [ Select] Income/Consumption Market (Good A) Price Henry P D. $1000 S800
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1)THE RED BUDGET LINE, THE PURPLE BUDGET LINE, POINT B ONLY,POINT C ONLY,POINT D ONLY
2) HIGHER, LOWER, STAY THE SAME
3) CHOOSE TO REMAIN
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- A family of four has an income of $15,000 today and will earn $24,000 tomorrow. i). If the family consumes $11,500 in the first period and $15,000 in the second period, whatis the interest rate? ii). If the family consumes $15,000 in the first period and $13,500 in the second period, whatis the interest rate? iii). Explain the income and substitution effects and discuss which effect dominated after theinterest rate change from part (a.) to part (b.).(i) Keith’s marginal utility of leisure is C – 20 and his marginal utility of consumption is L – 50. There are 110 hours in the week available to split between work and leisure. Keith receives £250 of welfare payments each week regardless of how much he works (assume he spends all of his welfare payments on consumption). What is Keith’s reservation wage? (ii) Suppose Danny receives the same welfare payments each week as Keith and has the same number of available hours (110). However, Danny’s indifference curve is flatter than Keith’s. How would his reservation wage compare to Keith’s? Why?Consumption when young and consumption whenold are both normal goods for Seymour, a workersaving for retirement. When the interest rate falls,what happens to Seymour’s consumption when old?a. It definitely increases.b. It definitely decreases.c. It increases only if the substitution effect exceedsthe income effect.d. It decreases only if the substitution effectexceeds the income effect.
- 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.What is the budget line for consumption (C) and leisure (L) if a person faces a constant wage of $12 per hour, there are 110 hours in the week to work, and she receives nonlabor income of $300 per week?How would you demonstrate part c) diagramatically 6. 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. b) 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. c) Use indifference curves and the feasible set to show why, given the properties of the optimal choice in part b), it is not optimal to work, say, 10, or 6 hours per day.
- For this question, assume that indifference curves are strictly convex, consumption andleisure are normal goods, and the optimal amounts of consumption, leisure, and labor arealways positive. A wage increase ______. (SE = substitution effect; IE = income effect)(a) increases labor supply via the SE and decreases labor supply via the IE(b) decreases labor supply via the SE and decreases labor supply via the IE(c) increases labor supply via the SE and increases labor supply via the IE(d) decreases labor supply via the SE and increases labor supply via the IE(e) Can’t tell without knowing the utility functionLabor-Leisure choice. Uses 80 hour maximum work week. Utility = R3C2 R = leisure C = dollar amount of income for consumption Budget Line 1: Wage = $16 per hour. No other income. Draw the Labor-Leisure diagram, including the budget line. Solve the point of optimization, and label it point A. Draw the indifference curve. Label it U1 Budget Line 2: Wage = $22 per hour. No other income. Draw the budget line for this new $22 wage. Solve the point of optimization, and label it point B. Draw the indifference curve. Label it U3 Use an auxiliary budget line to separate the income effect from the substitution effect. Identify the substitution effect as point S. Draw the indifference curve. Label it U2 The point of optimization for part C can be labeled, rather than numerically solved, as long as the drawn answers show expected results for two normal goods.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
- Q..5. Provide an example case for the substitution effect of interest rates on savings, and the income effect of the interest rate on savings. You may get the inspiration from the corresponding concepts for the labor-leisure choice.Suppose a person can work up to 80 hours per week at a pre-tax wage of $20 per hour but faces a constant 20% payroll tax. Assume that under these conditions the person maximizes utility by choosing to work 50 hours each week. The government proposes a negative income tax so that everyone receives $300 per week regardless of how much they work. To pay for the negative income tax, the payroll tax would be increased to 50%. Using the labor-leisure model, graphically show whether a person would be better off if the negative income tax is adopted and indicate whether hours worked increases or decreases due to the policy.Suppose there are two goods, co ee (C) and tea (T). The consump-tion set is R2+, so both goods can be consumed in arbitrary non-negativequantities.Abdul owns 2000 grams of co ee but does not own any tea. He hasno other wealth. The price of co ee is pC = 2 (in Dhs per gram) andthe price of tea is pT > 0 (in Dhs per gram). Abdul can sell co ee toearn income, which he can then use to buy tea or co ee. He can alsothrow co ee away (at no cost).Abdul's preferences can be represented by the utility functionu(c; t) = -(800 - c)2 - (800 - t)2;where c is the quantity of co ee (in grams) and t is the quantity of tea(in grams).(a) In separate diagrams, illustrate (i) the map of Abdul's indi erencecurves, (ii) Abdul's constraint set.(b) How much co ee and tea does Abdul decide to consume when (i)pT = 2, (ii) pT = 3, and (iii) pT = 4?(c) Illustrate Abdul's demand for co ee as a function of the price of tea (pT > 0) in an appropriate diagram.