3.7 QuestionsYou are offered a job in which you can choose any hours you want. You wih bpaid 13 dollars per hour.1. Draw a large (half a sheet of lined paper) budget constraint (feasible set) withincome on the y-axis and free time per day on the x-axis. Label the x and yintercepts. Draw the optimal point on your budget constraint at 10 hours of workwith an indifference curve passing through it.2. Draw the effect of a wage increase from 13 to 18 dollars per hour. Label thenew y intercept.3. Draw the effect of social security payment of $30 per day with a wage of $13per hour.4. What is the equation of your budget constraint in question 3?5. If your wage doubles from 12 to 24 dollars per hour, what can we can concludeabout your opportunity cost of free time?6. How does the substitution effect change your choice of free time and why?7. How does the income effect change your choice of free time and why?QUESTION 8 CHOOSE THE CORRECT ANSWER(S)Figure 3.15 depicts your budget constraint when the hourly wage is$15.Which of the following is (are) true?E A) The slope of the budget constraint is the negative of the wage rate (-15).B) The budget constraint is a feasible frontier with a constant marginal rateof transformation.C) An increase in the wage rate would cause a parallel upward shift in thebudget constraint.I D) A gift of $60 would make the budget constraint steeper, with theintercept on the vertical axis increasing to $300. While considering this decision, you receive an email. A mysteriousbenefactor would like to give you an income of $50 a day-for life (all youhave to do is provide your banking details.) You realize at once that this willaffect your choice of job. The new situation is shown in Figure 3.17: foreach level of free time, your total income (earnings plus the mystery gift) is$50 higher than before. So the budget constraint is shifted upwards by$50-the feasible set has expanded. Your budget constraint is now:c = 15(24 - t) + 50300IC,225150758.1012141618202224Hours of free timeHours of work246810121416Free time, t2422201816141210Consumption, c0 $30 $60 $90$120$150 $180$210$240The equation of the budget constraint is c = w(24 - t)The wage is w = $15, so the budget constraint is c = 15(24 – t)Figure 3.15 Your preferred choice of free time and consumption.4. Your ideal job2. The slope of the budget constraintThe slope of the budget constraint isnstraintYour indifference curves show that yours your budget con-ne maximum amountpu can have for eachideal job would be at point A, with 18equal to the wage, $15 (in absolutevalue). This is your MRT (the rate athours of free time and daily earnings ofwhich you can transform time into con-$90. At this point your MRS is equal tosumption), and it is also the opportunitycost of free time.the slope of the budget constraint,which is the wage ($15).3. The feasible setThe budget constraint is your feasiblefrontier, and the area below it is thefeasible set.Consumption ($)

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QUESTION 8 CHOOSE THE CORRECT ANSWER(S) Figure 3.15 depicts your budget constraint when the hourly wage is $15. Which of the following is (are) true? E A) The slope of the budget constraint is the negative of the wage rate (–15). C B) The budget constraint is a feasible frontier with a constant marginal rate of transformation. C) An increase in the wage rate would cause a parallel upward shift in the budget constraint. I D) A gift of $60 would make the budget constraint steeper, with the intercept on the vertical axis increasing to $300.

QUESTION 8 CHOOSE THE CORRECT ANSWER(S) Figure 3.15 depicts your budget constraint when the hourly wage is $15. Which of the following is (are) true? E A) The slope of the budget constraint is the negative of the wage rate (–15). C B) The budget constraint is a feasible frontier with a constant marginal rate of transformation. C) An increase in the wage rate would cause a parallel upward shift in the budget constraint. I D) A gift of $60 would make the budget constraint steeper, with the intercept on the vertical axis increasing to $300.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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John works at Frito-Lay distribution center. He is paid $20 per hour and can choose how many hours he can work a week. However, if he works 30 hours per week he is eligible for health insurance and other benefits worth $100 to him. Which of the graphs below show John’s budget constraint in this scenario?
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.
Assuming the two good case. When a person is attempting to maximize utility and the price of one of the two goods increases, then: The budget constraint will contract (rotate towards the origin), shifting the budget line inward indicating more choices are now affordable and a lower utility level is now possible. The budget constraint will contract (rotate towards the origin), shifting the budget line outward indicating fewer more are now affordable and a higher utility level is now possible. The budget constraint will contract (rotate towards the origin), shifting the budget line inward indicating fewer choices are now affordable and a lower utility level is now possible.
Suppose that the price of commodity Y is $ 20 per unit while the price of commodity X is $ 15 per unit and suppose that an individual’s money income is $ 100 per period and is all spent on X & Y. Draw the budget constraint line for this consumer at the initial point. If the price of X decreases to $10, incorporate BL2 showing change in the Budget line.
Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. i)Suppose the price of a dresses increases to $200 and income decreases to $4200. What is the new algebraic equation for Mrs. Griffiths budget constraint? Show the impact of the new budget line relative to the original budget line. ii)What would be the new marginal rate of substitution that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution
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)?
Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. Suppose the price of a dress increases to $200 and income decreases to $4200. What is the new algebraic equation for Mrs. Griffiths budget constraint? Show the impact of the new budget line relative to the original budget line.
• 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?
Moe and Curly both face the same budget line for consumption and leisure. At every possible consumption-leisure bundle on the budget line, Curly always requires marginally more leisure than does Moe in order to be equally happy when asked to forego a dollar of consumption. Using a standard budget line, graph the indifference curves for Moe and Curly that shows the optimal consumption-leisure bundle for both people. Which person optimally chooses more consumption? Which feature of indifference curves guarantees this result?
Explain why the lifetime budget constraint must be satisfied as a strict equality
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.
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.