Sameena works as a free-lance worker at a software house in Rawalpindi. Suppose she keeps awake for 110 hours a week. Also suppose that part of this time she can spend on earning money doing this job and using it for her consumption, and the rest of the time she can spend on her leisure not earning money. At first she earns Rs.550 for every hour she works. Draw a figure showing Saima’s budget constraint, her indifference curve for consumption and leisure and her optimum.
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Sameena works as a free-lance worker at a software house in Rawalpindi. Suppose
she keeps awake for 110 hours a week. Also suppose that part of this time she can
spend on earning money doing this job and using it for her consumption, and the rest
of the time she can spend on her leisure not earning money. At first she earns Rs.550
for every hour she works. Draw a figure showing Saima’s budget constraint, her
indifference curve for consumption and leisure and her optimum.
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- Explain why individuals make Choices that are directly on the budget constraint, rather than inside the budget constraint DI outside it.Ms. Shanila works as a free-lance worker at a software house. Suppose she keeps awake for 100 hours a week. Also suppose that part of this time she can spend on earning money doing this job and using it for her consumption, and the rest of the time she can spend on her leisure not earning money. At first, she earns Rs.500 for every hour she works. Draw a figure showing Shanila’s budget constraint, her indifference curve for consumption and leisure and her optimum. ii If per hour wage paid to her increases to Rs.600 for doing exactly the same work, draw figures to explain why she would increase her working hours or decrease her working hours. iii Mr. Khan is planning for his requirement. Suppose he can consume his salary of Rs. 100,000 while he is in service or save his salary to consume it after retirement. When he saves his salary he will get 10% interest on it. Draw Dr. Khan’s budget constraint, his indifference curve and his optimum. iv If interest rate goes up to 20%, draw figures…Garfield enjoys pizzas and hanging out (leisure). He sleeps 8 hours per day. Of the remaining16 hours, for each hour he chooses to work he gets paid 2 pizzas. Garfield must pay 6 pizzas intaxes but receives dividends equivalent to 6 pizzas.1. Draw Garfield’s budget constraint (put consumption on the vertical axis and leisure of thehorizontal). Make sure to show the vertical and horizontal intercepts as well as the slope.b. Now suppose that Garfield chooses to work 10 hours per day. Find how many hoursof leisure and how many pizzas he will consume.c. Using your answer from b, show Garfield’s optimal point on the budget line and drawthe indifference curve passing from that point.4. Suppose that Garfield’s wage falls to 1 pizza per hour. Draw Garfield’s new budgetconstraint. Make sure to show the value of any intercept that has changed.5. Suppose that in response, Garfield decides to work for 6 hours per day. How much leisurewill he take, and how much pizza will he consume?6. Use an…
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- Juan is currently working in a job that pays $25 an hour and he chooses to work 8 hours per day. Assume that Juan can work a maximum of 16 hours a day, and he has complete flexibility in how many hours a day he works. Illustrate Juan’s budget constraint and his optimal choice of consumption and leisure. What is the slope of his budget constraint? What does this slope represent? (As on any graph you draw, make sure that you label the axes, the intercepts and the optimal choice.) Juan begins receiving a government transfer payment of $100 per day. Add his new budget constraint to your graph in (a) and show his new optimal choice. Does he choose more or less consumption? More or less leisure? Explain why for both goods. The government imposes a tax of 25% on Juan’s earnings from work and increases his government transfer to $150 per day (the government transfer payment is not taxed.) Redraw the budget constraint from part (b) (omit the part (a) budget constraint), and add a new budget…Consider your decision about how many hours towork.a. Draw your budget constraint assuming thatyou pay no taxes on your income. On the samediagram, draw another budget constraintassuming that you pay a 15 percent income tax.b. Show how the tax might lead you to work morehours, fewer hours, or the same number of hours.Explain.b. Mary has two dinner options available: eating a home cooked meal for $150 permeal, or at a restaurant for $260 per meal. Her weekly budget is $2500.iv. Suppose the price of a home cooked meal increases to $200 and incomeincreases to $4200. Show the impact of the new budget line relative to theoriginal budget line. What would be the new marginal rate of substitutionthat corresponds to the optimal consumption choice? Interpret themarginal rate of substitution
- 3. Akua is a School of Agriculture graduate and consumes 2 goods: Yoghurt and Bread. Akua also earns a typical student income from the parents, GHS 400 a month. She can either spend it all on Yoghurts and get 50, or she can spend it all on Bread and get 200 loaves. a. Given this information, construct the equation for Akua’s Budget Line. b. The following are the bundles that Akua can afford with her income: Yoghurt Bread 10 0 80 20 Fill the blanks in the table with the quantities that will exhaust Akua’s income. c. Akua gets a research grant and her income increases to GHS 800 per month. What is the new equation of herbudget line? What if income stays constant at GHS 400and the price of Yoghurts increase to GHS10? d. Assume that prices are the same as used in part a. If the marginal utility of a Yoghurt is 20, what is the marginal utility of Bread if she is maximizing her utility? e. Now assume that Yoghurt and Bread are…(Short Answers) 1. Jie works in a university. He can work as many hours as he wishes at a wage rate of w. Let C be the number of dollars he has to spend on consumption and let R be the number of hours of leisure that he chooses. Assume that Jie has the utility function U(C, R) = In(C) + In (R). He carms $4 per hour and has 80 hours per week to devote to labor or leisure, and has no income from sources other than labor. a) How many consumptions does he choose? How many hours of leisure does he choose? b) Suppose that Jie's wage rate will rise to $6 per hour from next year. How many hours of leisure per week will he choose next year? You are required to decompose his change in demand into the substitution effect, ordinary income effect and endowment income effect. c) Suppose that Jie will get $4 per hour for the first 35 hours that he works and $6 per hour for every hour beyond 35 hours a week from next year. How many hours of leisure per week will he choose next year?3. Akua is a School of Agriculture graduate and consumes 2 goods: Yoghurt and Bread. Akua also earns a typical student income from the parents, GHS 400 a month. She can either spend it all on Yoghurts and get 50, or she can spend it all on Bread and get 200 loaves. a. Given this information, construct the equation for Akua’s Budget Line.b. The following are the bundles that Akua can afford with her income:Yoghurt Bread10 08020 Fill the blanks in the table with the quantities that will exhaust Akua’s income. c. Akua gets a research grant and her income increases to GHS 800 per month. What is the new equation of her budget line? What if income stays constant at GHS 400 and the price of Yoghurts increase to GHS10?d. Assume that prices are the same as used in part a. If the marginal utility of a Yoghurt is 20, what is the marginal utility of Bread if she is maximizing her utility?e. Now assume that Yoghurt and Bread are compliments for Akua. For her to consume all her income of GHS 400,…