Consider the figure to the right, where a consumer initially maximizes utility at consumption-leisure combination R along budget constraint L¹. Suppose the wage rate doubles. 1.) Use the line drawing tool to draw the new budget constraint with the higher wage. Label this line 2. 2.) Use the point drawing tool to plot the new utility-maximizing combination of consumption and leisure. Label this point 'T'. Carefully follow the instructions above, and only draw the required objects. As the wage increases, the hours worked by the individual In this case, leisure is good. Income (Market value of goods) per day 240 220- 200 180 160 140 120- 100- 80- 60 40 20- L¹ 2 4 R 43344 6 8 10 12 14 16 18 20 22 24 26 Leisure hours per day O O R

Consider the figure to the right, where a consumer initially maximizes utility at consumption-leisure combination R along budget constraint L¹. Suppose the wage rate doubles. 1.) Use the line drawing tool to draw the new budget constraint with the higher wage. Label this line 2. 2.) Use the point drawing tool to plot the new utility-maximizing combination of consumption and leisure. Label this point 'T'. Carefully follow the instructions above, and only draw the required objects. As the wage increases, the hours worked by the individual In this case, leisure is good. Income (Market value of goods) per day 240 220- 200 180 160 140 120- 100- 80- 60 40 20- L¹ 2 4 R 43344 6 8 10 12 14 16 18 20 22 24 26 Leisure hours per day O O R

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.13P

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b. i. Explain the concept of Marginal Rate of Substitution (MRS) as an important tool of indifference curve analysis of demand
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