SM3 For questions 7 - 12: Ashley's preferences for consumption and leisure can be expressed asU(C, L) = (C-50) *(L-20).This utility function implies that Ashley's marginal utility of leisure is C - 50 and her marginal utility of consumption is L-20. There are 100 hours in a week available for work and leisure. Ashley earns $10 per hour. She also receives $350 worthof welfare benefits each week regardless of how much she works.7. The slope of Ashley's budget line isA. 10B. 2079. Ashely's reservation wage isA. 3.75B. 4C. -10J8. When L = 90 and she is on her budget line, the marginal rate of substitution isA. 4.92B. 5.71C. 6.13D. 7.44C. 4.25B. 11.50 hoursD. -20and leisure isC. 550; 8010. Ashely's optimal amount of consumption isA. 650; 70B. 600; 7511. If government offers extra $125 subsidy and collects 50% payroll tax, Ashely willA. remain in; increaseB. remain in; decrease C. exit; increaseD. 4.5D. 500; 85labor force and her utility willD. exit; decreaser12. Base on question 11, if Ashely find a job that offers her $20 per hour salary, the substitute effect of higher income onlabor hours isA. 0 hourC. 15.50 hoursD. 18.75 hours

For questions 7 - 12: Ashley's preferences for consumption and leisure can be expressed as U(C, L) = (C-50) *(L-20). This utility function implies that Ashley's marginal utility of leisure is C - 50 and her marginal utility of consumption is L -20. There are 100 hours in a week available for work and leisure. Ashley earns $10 per hour. She also receives $350 worth of welfare benefits each week regardless of how much she works.

For questions 7 - 12: Ashley's preferences for consumption and leisure can be expressed as U(C, L) = (C-50) *(L-20). This utility function implies that Ashley's marginal utility of leisure is C - 50 and her marginal utility of consumption is L -20. There are 100 hours in a week available for work and leisure. Ashley earns $10 per hour. She also receives $350 worth of welfare benefits each week regardless of how much she works.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.14P

See similar textbooks

Similar questions

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.
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.
Q11. Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F. Suppose as Case A, Total income is $120 and per unit prices of Food (F) and Cloth (C) are $2 and $10, respectively. a. What is the value of MRS at the optimal point and what does this value mean? b. What is the optimal consumption bundle i.e (F*,C*)? c. Plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space.
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.
Q12. Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F.Suppose as Case X, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and $15, respectively. a. What is the value of MRS at the optimal point and what does this value mean? b. What is the optimal consumption bundle i.e (F*,C*)? c. Plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space.
Consider an infinitely lived agent who has one unit of a commodity and she consumes it over lifetime. The commodity is not perishable and she receives no dividend or interest on saving. Consumption of the commodity in period t is denoted Xt. Let the lifetime utility function be given by: u(x0, x1,...,) = Σ B^t (ln Xt).[Limit 1 to infinity]. Here, 0 < B < 1. Compute the consumer’s optimal consumption level for each period.
Joko is a university student, working part-time at copying service center for Rp. 8/hour with zero non-labor income. (a) Graph Joko’s budget constraint and label the utility-maximing outcome if Joko opts to work 40 hours per week. (b) Suppose Joko’s parents decide to send him Rp.100/week. Graph Joko’s new budget constraint. (c) How many hours will Joko now have to work to maintain the same weekly income as in (a)?
What is two factors that may influence the shape of individuals’ indifference curves (flat or steep) which reflect their preferences for work or leisure? What is the difference between income effect and substitution effect under the basic work-leisure decision model?
Q9. Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F.Suppose as Case X, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and $15, respectively. a. What is the value of MRS at the optimal point and what does this value mean? b. What is the optimal consumption bundle i.e (F*,C*)? c. Plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space. d. Now assume a new Case Y, Pc' = $10, holding all else the same, do the same analysis (parts a-c) and contrast your answers to Case X. For part c, you should draw old (Case X) and new (Case Y) budget lines/point of optimality.
Consider the problem of a consumer who chooses between consuming goods and enjoying leisure in the current and future periods. Denote the consumption and leisure in the current period as C and l, and the consumption and leisure in the future period as C′ and l′, respectively. The preference is summarized by the following utility function: U(C,C′,l,l′)=lnC+ψlnl+β(lnC′ +ψlnl′). This individual is endowed with h units of time in each period. Wage rate per unit of labour time is w and w′ in the current and future period. In addition, the consumer receives profit transfer π and π′ and pays lump-sum taxes T and T′ in the current and future periods. Denote the saving in the current period as Sp. Answer the following questions. Derive the life-time budget constraint of this consumer. Set up the consumer’s problem. Solve for consumption (C and C′), leisure (l and l′), and saving (Sp). How does an increase in wage rate w affect C, Sp, and l?
2. Utility maximization - Trading off labor and leisure The indifference curves on the following graph show Simone’s preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Simone spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 50 hours (and thus has 50 hours of leisure) and earns $400 per week. Use the grey point (star symbol) to indicate Simone’s initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. [Please see the image attached] Now, suppose that Simone is laid off, but she is eligible to collect unemployment benefits of $350 per week. Use the black point (cross symbol) to represent Simone’s unemployment point on the previous graph when she consumes $350 per week and has 100 hours of leisure. Suppose that after a month of…
q7- When leisure is a normal good, the income effect from an increase in wages is manifest in a(n): Select one: a. desire to consume less leisure b. a change in preferences c. desire to consume more leisure d. a shift inwards of the budget constraint