MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Question
Chapter 4, Problem 10CACQ
To determine
(a)
To draw worker’s opportunity set in a given 24-hour period.
To determine
(b)
To analyze the preference of worker.
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A consumer earns a wage of 20 dollars per hour and has an unearned income of $100 per day. What would the consumption-leisure budget line look like?
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what is the budget line for consumption and
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Cho lives in Miami and loves to eat desserts. She spends her entire weekly allowance on pudding and pie. A bowl of pudding is priced at $1.50, and a piece of pumpkin pie is priced at $4.50. At her current consumption point, Cho's marginal rate of substitution (MRS) of pudding for pie is 5. This means that Cho is willing to trade five bowls of pudding per week for one piece of pie per week.
Chapter 4 Solutions
MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
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- Suppose that the owner of Boyer Construction is feeling the pinch of incrs associated with worker’s compensation and has decided to cut the wages of its two employees (Albert and Sid) from $25 per hour to $22 per hour. Assume that Albert and Sid view income and leisure as “goods,” that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Draw each worker’s opportunity set for each hourly wage. At the wage of $25 per hour, both Albert and Sid are observed to consume 12 hours of leisure (and, equivalently, supply 12 hours of labor). After wages were cut to $22, Albert consumes 10 hours of leisure and Sid consumes 14 hours of leisure. Determine the number of hours of labor each worker supplies at a wage of $22 per hour. How can you explain the seemingly contradictory result that the workers supply a different number of labor hours? (LO2, LO3, LO7)arrow_forwardWhat is the concept of diminishing marginal utility of consumers? How consumer use Marginal Rate of Substitution to reach consumer equilibrium level where MRTS = Px/Py?arrow_forwardJack currently works 38 hours per week at a wage rate of $15 per hour. His marginal rate of substitution is $20 per hour. Is Jack's utility maximized? If yes, explain why. If no, explain why not and discuss what Jack should do in order to further increase utility.arrow_forward
- Amy lives in Detroit and loves to eat desserts. She spends her entire weekly allowance on yogurt and pie. A bowl of yogurt is priced at $1.75, and a piece of pumpkin pie is priced at $7.00. At her current consumption point, Amy's marginal rate of substitution (MRS) of yogurt for pie is 5. This means that Amy is willing to trade five bowls of yogurt per week for one piece of pie per week. Does Amy's current bundle maximize her utility—in other words, make her as well off as possible? If not, how should she change it to maximize her utility? A. Amy's current bundle maximizes her utility, and she should keep it unchanged. B. Amy could increase her utility by buying more yogurt and less pie per week. C. Amy could increase her utility by buying less yogurt and more pie per week.arrow_forwardJohn works in a shoe factory. He can work as many hours per day as he wishes at a wage rate w. Let C be the amount of dollars he spends on consumer goods and R. be the number of hours of leisure that he chooses. John's preferences are represented by U(C, R) = CR utility function Question 2 Part a John earns $8 an hour and has 18 hours per day to devote to labor or leisure, and he has $16 of nonlabor income per day. Draw John's indifference curves, budget constraints and solve for his optimal consumption and leisure choices.arrow_forwardCharles lives in New York City and loves to eat desserts. He spends his entire weekly allowance on jello and pie. A bowl of jello is priced at $1.25, and a piece of pumpkin pie is priced at $5.00. At his current consumption point, Charles's marginal rate of substitution (MRS) of jello for pie is 3. This means that Charles is willing to trade three bowls of jello per week for one piece of pie per week. Does Charles's current bundle maximize his utility-in other words, make him as well off as possible? If not, how should he change it to maximize his utility? Charles could increase his utility by buying more jello and less pie per week. O Charles could increase his utility by buying less jello and more pie per week. Charles's current bundle maximizes his utility, and he should keep it unchanged.arrow_forward
- Consider an individual who had been planning to retire in five years. Unfortunately, they've just been laid off and the highest-paying job they've been able to find pays a lower hourly wage than did their previous job. a) Using the concepts of the income and/or substitution effect, describe why we might expect this individual to retire earlier than they originally planned. b) Using the concepts of the income and/or substitution effect, describe why we might expect this individual to retire later than they originally plannedarrow_forwardConsider an individual who is paid a constant hourly wage and is deciding how many hours to spend working and how many to take as free time per week. Which of the following statements are correct? Select all the correct answers. □ If the wage increased, this would decrease the opportunity cost of leisure time If the wage increased and the substitution effect dominates, the individual will choose to have less free time If the wage increased and the individual chooses to work the same hours, the income effect and substitution effects are both zero If the wage increased and the income effect dominates, the individual will choose to have more free timearrow_forwardConsider two individuals, Carole and Mo, who each have a job opportunity that pays a wage of $20 per hour and allows them to choose the number of hours per week they'd like to work. Carole has stronger preferences for leisure than Mo. Ultimately, both Carole and Mo choose to work more than zero hours per week. Draw (and upload) one graph that includes: • Carole and Mo's income-leisure constraint • Carole's utility-maximizing indifference curve (Uc) and choice of leisure hours (Lc) • Mo's utility-maximizing indifference curve (UM) and choice of leisure hours (LM) [Note: There are multiple, though similar, ways to draw this graph. Focus on ensuring that the constraint, indifference curves and hours worked align with the information provided above.]arrow_forward
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