Please help me to solve question 6 d. I am having a little bit of trouble understanding it. Thank you 6.Assume you can work as many hoursyou wish at £12 per hour (net of tax). If you do not work you have noincome. You have no ability to borrow or lend, so your consumption, c, issimply equal to your income.a) Derive and plot the feasible set, between daily values of consumption c,and "leisure", I. Label the values at the intercepts (the points where thefeasible frontier cuts the two axes).b) Assume that your optimal choice of consumption and leisure is to work 8hours per day. Illustrate this choice diagrammatically using the feasible setand indifference curves.c) Use indifference curves and the feasible set to show why, given theproperties of the optimal choice in part b), it is not optimal to work, say,10, or 6 hours per day. (continued on next slide)6. (continued)d) Now assume that you receive an income of £140 per week from anunknown benefactor. Show the impact on your feasible set (nb: be morecareful than Stephen was in his diagrams in Autumn Week 5!), and show anew optimal choice in which consumption increases but labour supplydecreases. Using the concept of the marginal rate of substitution, explainwhy this is a likely outcome.e) Now assume that, starting from the optimal point in d), your wageincreases to £18 per hour. Explain why the impact of this change isambiguous, and relate to the long-run historical experience of wagegrowth in rich countries.

As mentioned in the question, part D is solved.The labor-leisure model looks at how people choose…

d) Now assume that you receive an income of £140 per week from an unknown benefactor. Show the impact on your feasible set (nb: be more careful than Stephen was in his diagrams in Autumn Week 5!), and show a new optimal choice in which consumption increases but labour supply decreases. Using the concept of the marginal rate of substitution, explain why this is a likely outcome.

d) Now assume that you receive an income of £140 per week from an unknown benefactor. Show the impact on your feasible set (nb: be more careful than Stephen was in his diagrams in Autumn Week 5!), and show a new optimal choice in which consumption increases but labour supply decreases. Using the concept of the marginal rate of substitution, explain why this is a likely outcome.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 1PA

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