Saima works as a free-lance worker at a software house in Rawalpindi. 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 Saima’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.

Saima works as a free-lance worker at a software house in Rawalpindi. 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 Saima’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.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 1SQP

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Saima works as a free-lance worker at a software house in Rawalpindi. 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 Saima’s budget constraint, her indifference curve for consumption and leisure and her optimum.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.
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Aisha is considering how to allocate the next 6 hours of her free time. She could choose between leisure (L) and helping her neighbour with the house chores. If she decides to help her neighbour, she is going to get paid at £25 per hour, which she can then spend on her favourite pizza (P). Suppose the price of pizza is £12.50. Aisha's preferences for leisure and pizza are given by the following utility function: U(L, P) = 3L + P. (MUL = 3, MUp = 1). a) Write down Aisha's budget equation and draw the corresponding budget line. Clearly label the axes and calculate the coordinates of the points of intersection of the budget line with each axis. b) Calculate Aisha's marginal rate of substitution between leisure and pizza. Explain the concept of MRS and interpret the figure obtained. c) Find Aisha's optimal consumption bundle, both algebraically and graphically. Explain your reasoning. d) Would Aisha's optimal choice change if she could get a discount on her pizza purchases so that each…