Suppose you are the only producer and consumer in the economy and the only constraint you face is time. You produce a apple in an hour, if you do not make a production, you enjoy your time as a leisure time. You derive utility from both consuming the apple and consuming the leisure time. Suppose there are T hours to be used for both leisure and production. Additionally suppose that you are provided with m ( > 0 ) apple in each day by the government. ( Consumption does not take time) i) Please draw the budget constraint and budget set you face ii) Suppose that you become able to produce two apples in an hour but the number of apple provided everyday by government dropped to m-2 ( m > 2). Could you please draw budget set and budget constraint under new settings? (This scenario is valid only for this question) iii) Suppose that if you use ȟ (< T) hours of leisure (MULeisure / MUapple ) = 1 and if you use more than ȟ hours for leisure (MULeisure / MUapple ) < 1, and if you use less than ȟ hours for leisure ( MULeisure / MUapple) > 1. Under this new information please discuss whether the optimal leisure ( h* ) is less than ȟ , is equal to ȟ or is greater than ȟ ?. ( h* represents optimal leisure use, MULeisure is the Marginal Utility of Leisure and MUapple is Marginal Utility of Apple).

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter27: Investment, The Capital Market, And The Wealth Of Nations

Section: Chapter Questions

Problem 13CQ

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Suppose you are the only producer and consumer in the economy and the only constraint you face is time. You produce a apple in an hour, if you do not make a production, you enjoy your time as a leisure time. You derive utility from both consuming the apple and consuming the leisure time. Suppose there are T hours to be used for both leisure and production. Additionally suppose that you are provided with m ( > 0 ) apple in each day by the government. ( Consumption does not take time) i) Please draw the budget constraint and budget set you face ii) Suppose that you become able to produce two apples in an hour but the number of apple provided everyday by government dropped to m-2 ( m > 2). Could you please draw budget set and budget constraint under new settings? (This scenario is valid only for this question) iii) Suppose that if you use ȟ (< T) hours of leisure (MULeisure / MUapple ) = 1 and if you use more than ȟ hours for leisure (MULeisure / MUapple ) < 1, and if you use less than ȟ hours for leisure ( MULeisure / MUapple) > 1. Under this new information please discuss whether the optimal leisure ( h* ) is less than ȟ , is equal to ȟ or is greater than ȟ ?. ( h* represents optimal leisure use, MULeisure is the Marginal Utility of Leisure and MUapple is Marginal Utility of Apple).

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