2. Utility maximization - Trading off labor and leisureThe indifference curves on the following graph show Terese's preferences for leisure and consumption for increasinglevels of utility, such that her utility increases in both consumption and leisure. Assuming that Terese spends 68hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all.Initially, she works 20 hours (and thus has 80 hours of leisure) and earns $450 a week. Use the red point (crosssymbol) to indicate Terese's initial leisure/consumption bundle. Dashed drop lines will automatically extend to bothaxes.CONSUMPTION (Dollars per week)30002400180012006000U1U220U340Initial BundleUnemployed 1Ķ--Unemployed 2Aa Aa6080100LEISURE (Hours per week) Help Clear AllNow, suppose that Terese is laid off due to hard economic times, but she is able to collect unemployment benefits of$400 a week. Use the black point (X symbol) to represent Terese's unemployment point on the previous graph whenshe consumes $400 a week and has 100 hours of leisure. Suppose that after a month of Terese's being unemployed, her friend suggests that she apply for a job at hercompany, where she could earn her previous salary again, working 20 hours a week. Because Terese is onutility curve while receiving unemployment benefits than she was when she was employed, sheworking at her friend's company than she is remaining unemployed.would beThe minimum weekly salary that would make Terese as well off working 20 hours a week as she is when unemployedand collecting benefits isNow, suppose that the government enacts reforms that reduce unemployment compensation to $200 per week forTerese. On the previous graph, use the grey point (star symbol) to represent Terese's new unemployment point whenshe consumes $200 a week and has 100 hours of leisure. The minimum weekly salary that would now make Tereseas well off working 20 hours a week as she is when unemployed and collecting benefits islikely to accept a job; therefore, based on this example, youworkers who are currently collectingThe decrease in benefits makes Teresewould expect that a decrease in benefits would causeunemployment benefits to accept job offers.

Consumer labor-leisure choice is a fundamental concept in economics that analyzes how individuals…

The indifference curves on the following graph show Terese's preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Terese spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 20 hours (and thus has 80 hours of leisure) and earns $450 a week. Use the red point (cross symbol) to indicate Terese's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. CONSUMPTION (Dollars per week) 3000 T 112 T Initial Bundle

The indifference curves on the following graph show Terese's preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Terese spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 20 hours (and thus has 80 hours of leisure) and earns $450 a week. Use the red point (cross symbol) to indicate Terese's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. CONSUMPTION (Dollars per week) 3000 T 112 T Initial Bundle

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

See similar textbooks

Similar questions

2. Utility maximization - Trading off labor and leisure The indifference curves on the following graph show Amy's preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Amy spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 45 hours (and thus has 55 hours of leisure) and earns $250 per week. Use the grey point (star symbol) to indicate Amy's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. ? CONSUMPTION (Dollars per week) 1000 900 800 700 600 500 400 300 200 100 0 0 10 20 30 40 50 60 70 80 LEISURE (Hours per week) 90 100 110 Initial bundle $200 Unemployment Benefits Equivalent Bundle, $100 Unemployment Benefits Equivalent Bundle Now, suppose that Amy is laid off, but she is eligible to collect unemployment benefits of $200 per week. Use the black point…
2. Utility maximization - Trading off labor and leisure The indifference curves on the following graph show Amy's preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Amy spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 45 hours (and thus has 55 hours of leisure) and earns $250 per week. Use the grey point (star symbol) to indicate Amy's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. CONSUMPTION (Dollars per week) 1000 900 800 700 600 500 400 300 200 100 0 0 + 10 20 30 40 50 60 70 80 LEISURE (Hours per week) 90 U3 100 110 Initial bundle + $200 Unemployment Benefits Equivalent Bundle, $100 Unemployment Benefits Equivalent Bundle ?
1. How many hours will a person allocate to leisure activities if her indifference curves between consumption and leisure activities are concave (NOT convex) to the origin? 2. Tom earns $15 per hour for up to 40 hours of work each week. He is paid $30 per hour for every hour in excess of 40. Tom faces a 20 percent tax rate and pays $4 per hour in child care expenses for each hour he works. Tom receives $80 in child support payments each week. There are 110 (non-sleeping) hours in the week. Graph Tom's weekly budget line. 3. John's utility function is U(C, L) = C²/² L?/2. The most leisure time he can consume is 110 hours. His wage rate is $10. Find John's optimal amount of consumption and hours for leisure and work. 4. Suppose the wage rate increased (e.g. from $10 to $20), how many hours would a worker take for work and leisure activities? Assume that the income effect dominates the substitution effect, draw a graph and explain in detail. 5. Cindy gains utility from consumption C and…
7. An individual's utility function is given by U =1000x, +450x, +5 x,x, -2x - x where x, is the amount of leisure measured in hours per week and x, is income earned measured in cedis per week. Determine the value of the marginal utilities, when x, = 138 and x, = 500. Hence estimate the change in utility if the individual works for an extra hour, which increases earned income by GH¢15 per week. Does the law of diminishing utility hold for this function?
Problem Set 1. A firm's production function is º=50L-0.01Ľ' , where L denotes the size of the workforce. Find the value of MP in the case when: (a) L=1, (b) L=10, (c) L=100, (d) L=1000 Does the law of diminishing marginal productivity apply to this particular function? 2. Show that the price elasticity of demand is constant for demand functions of the form A P = Q" where A and n are positive constants. 3. The demand and total cost functions of a good are respectively 4P+Q-16=0 and ТС %3D 4 + 20 — 10 20 a) Find expressions for TR, (profit) 1 , MR, and MC in terms of Q. b) Solve the equation dn = 0 ÕP and hence determine the value of Q which maximizes profit. c) Verify that, at the point of maximum profit, MR=MC. 4. The cost of building an office complex, x floors high, in a prime location in Accra is made up of three components: (a) GH¢10 million for the land (b) GH¢'/, million per floor (e) Specialized costs of GH¢10000× per floor. How many floors should the office complex contain if…
Assume that Sara has $800 per month to divide between playing golf and playing paint ball . Assume Golf costs $40 and paintball costs $80 . Suppose Sara plays golf eight times per month and plays paintball six times per month . a. Draw Sara’s budget constraintb. Assume Sara has new expenses and can spend $320 only this month. Draw the new budget constraintc. As a result of a decrease in income Sara decides to play 11 rounds of golf and two games of paintball . what kind of a good is paintball ? what kind of a good is golf?d. Assume Sara has $400, the price of paintball is still $40 , but the price of Golf doubles , draw the new budget constraint
2. Utility maximization - Trading off labor and leisure The indifference curves on the following graph show Simone’s preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Simone spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 50 hours (and thus has 50 hours of leisure) and earns $400 per week. Use the grey point (star symbol) to indicate Simone’s initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. [Please see the image attached] Now, suppose that Simone is laid off, but she is eligible to collect unemployment benefits of $350 per week. Use the black point (cross symbol) to represent Simone’s unemployment point on the previous graph when she consumes $350 per week and has 100 hours of leisure. Suppose that after a month of…
2. [For this question, the unit used is in thousands of Rupiah].Rihana's preferences for consumption (C) and leisure (L) are explained by the utility function:U(C, L) = (C - 200) (L - 56) so the marginal rate of substitution is MRS = (L - 56)/(C - 200) If Rihana has 168 hours to devote her time to work or leisure per week and she receives Rp. 240 of the pension fund per week, how much is Rihana's reservation fee? (A). Rp. 0(B). Rp. 2.80(C). Rp. 5.00(D). Rp. 6,25(E). Minimum wage rate. Choose one of the answers from the five choices provided. And please, also provide a brief description, explanation or argument for your choice. Thank you Bartleby!
Suppose you expect to earn $10 this year and $10 next year. Each dollar you earn this year can be either spent, or saved at an interest rate of 10%. If you want to spend more than $10 this year, you can borrow money at 10% interest and repay it next year. Next year, you plan to pay oyour debts (if any), then spend all your earnings and all your savings (if any). Draw your budget line between “dollars spent this year" and “dollars spent next year". Suppose the government imposes a 50% income tax on all your earnings this year and next year (not including your interest earnings). Draw your new budget line. Suppose the government imposes a 50% sales tax on everything you buy this year and next year. Draw your new budget line. Suppose the government imposes a 50% income tax on all your earnings this year and next year, including your interest earnings. Draw your new budget line. True or False: If interest earnings are not subject to income tax, then an income tax and a sales tax…
1. What will be her total utility from both leisure and income when working 25 hours per week? 2. Does it make sense from the perspective of utility for Terry to increase her work hours? (Think about the total utility calculations.). Why or Why not?
Juan is currently working in a job that pays $25 an hour and he chooses to work 8 hours per day. Assume that Juan can work a maximum of 16 hours a day, and he has complete flexibility in how many hours a day he works. Illustrate Juan’s budget constraint and his optimal choice of consumption and leisure. What is the slope of his budget constraint? What does this slope represent? (As on any graph you draw, make sure that you label the axes, the intercepts and the optimal choice.) Juan begins receiving a government transfer payment of $100 per day. Add his new budget constraint to your graph in (a) and show his new optimal choice. Does he choose more or less consumption? More or less leisure? Explain why for both goods. The government imposes a tax of 25% on Juan’s earnings from work and increases his government transfer to $150 per day (the government transfer payment is not taxed.) Redraw the budget constraint from part (b) (omit the part (a) budget constraint), and add a new budget…
1. What will be her total utility from both leisure and income when working 10 hours per week? 2. Does it make sense from the perspective of utility for Terry to decrease her work hours? (Think about the total utility calculations.). Why or Why not?