Florence is a highly paid fashion consultant who earns $100 per hour. She has 16 hours per day that she can allocate to work or leisure, and she decides to work for 12 hours. a. Draw Florence's time allocation budget line for a typical day, and illustrate the indifference curve at her optimal choice. One of Florence's clients is featured on the front page of Vague, an influential fashion magazine. As a result, Florence's consulting fee now rises to $500 per hour. Florence decides to work only 10 per day. b. Draw Florence's new time allocation budget line, and illustrate the indifference curve at her optimal choice. c. Both the income effect and the substitution effect influence how a person decides to change their willingness to work in response to a change in wage. Explain what each effect means. Which effect is stronger for Florence? hours
Florence is a highly paid fashion consultant who earns $100 per hour. She has 16 hours per day that she can allocate to work or leisure, and she decides to work for 12 hours. a. Draw Florence's time allocation budget line for a typical day, and illustrate the indifference curve at her optimal choice. One of Florence's clients is featured on the front page of Vague, an influential fashion magazine. As a result, Florence's consulting fee now rises to $500 per hour. Florence decides to work only 10 per day. b. Draw Florence's new time allocation budget line, and illustrate the indifference curve at her optimal choice. c. Both the income effect and the substitution effect influence how a person decides to change their willingness to work in response to a change in wage. Explain what each effect means. Which effect is stronger for Florence? hours
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 1PA
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