Indifference curve and budget line in the work-leisure model.

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Answer 1

Question

Chapter 2, Problem 1QS

To determine

Indifference curve and budget line in the work-leisure model.

Expert Solution & Answer

Explanation of Solution

An indifference curve in work-leisure model represents the combination of real income and leisure time that provide the same level of satisfaction to the worker.

In work-leisure model, budget line represents all possible combinations of real income and leisure that the worker obtained from the given wage rate.

The indifference curve is downward sloping, which means that it is negatively sloped because the workers are willing to give up leisure time in order to get more income and maintain equal satisfaction. If the time spent on leisure is reduced, income will increase. Thus, the indifference curve will be downward sloping.

Another major feature is that indifference curve is convex to the origin. The convexity implies that the marginal rate of substitution between income and leisure time decreases as a worker moves along the indifference curve, where the marginal rate of substitution indicates that one is given up for another. Thus, the indifference curve is convex to the origin.

The graphical representation of indifference curve and budget line is represented as follows:

Contemporary Labor Economics, Chapter 2, Problem 1QS

In the figure, the horizontal axis represents hours of leisure and work and the vertical axis represents income. The downward sloping curve is the budget line of the worker. IC1, IC2, and IC3 are the indifference curves. The tangent point of budget constraints and indifference curve indicates the optimal choice. Thus, in the figure, U1 is the optimal point, where the worker will work for 8 hours per day and 16 hours spend for leisure in order to get $16 each day.

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Students have asked these similar questions

Consider an individual who lives in an economy without a welfare program. They initially work T-L0hours per week, where (T-L0)>0. They earn an hourly wage (W) and no non-labour income. a) Draw a graph that reflects this individual’s income-leisure constraint, utility-maximizing indifference curve (U0), choice of leisure hours (L0) and income (Y0). b) Now, assume that a welfare program has been implemented in this economy. The welfare benefit is smaller than the individual's initial income level (Y0) and there is a 50% clawback on any labour income earned. The individual now maximizes their utility by working and collecting a partial welfare benefit. On the same graph as part a, draw this individual’s new income-leisure constraint, utility-maximizing indifference curve (U1), choice of leisure hours (L1) and income (Y1).

Using indifference curve analysis, show the effects of an increase in the hourly wage rate on labor supply (hours of work) and earnings. Identify the income and substitution effects.

Labor-Leisure choice. Uses 80 hour maximum work week. Utility = R3C2 R = leisure C = dollar amount of income for consumption Budget Line 1: Wage = $16 per hour. No other income. Draw the Labor-Leisure diagram, including the budget line. Solve the point of optimization, and label it point A. Draw the indifference curve. Label it U1 Budget Line 2: Wage = $22 per hour. No other income. Draw the budget line for this new $22 wage. Solve the point of optimization, and label it point B. Draw the indifference curve. Label it U3 Use an auxiliary budget line to separate the income effect from the substitution effect. Identify the substitution effect as point S. Draw the indifference curve. Label it U2 The point of optimization for part C can be labeled, rather than numerically solved, as long as the drawn answers show expected results for two normal goods.

Answer 2

Question

Chapter 2, Problem 1QS

To determine

Indifference curve and budget line in the work-leisure model.

Expert Solution & Answer

Explanation of Solution

An indifference curve in work-leisure model represents the combination of real income and leisure time that provide the same level of satisfaction to the worker.

In work-leisure model, budget line represents all possible combinations of real income and leisure that the worker obtained from the given wage rate.

The indifference curve is downward sloping, which means that it is negatively sloped because the workers are willing to give up leisure time in order to get more income and maintain equal satisfaction. If the time spent on leisure is reduced, income will increase. Thus, the indifference curve will be downward sloping.

Another major feature is that indifference curve is convex to the origin. The convexity implies that the marginal rate of substitution between income and leisure time decreases as a worker moves along the indifference curve, where the marginal rate of substitution indicates that one is given up for another. Thus, the indifference curve is convex to the origin.

The graphical representation of indifference curve and budget line is represented as follows:

Contemporary Labor Economics, Chapter 2, Problem 1QS

In the figure, the horizontal axis represents hours of leisure and work and the vertical axis represents income. The downward sloping curve is the budget line of the worker. IC1, IC2, and IC3 are the indifference curves. The tangent point of budget constraints and indifference curve indicates the optimal choice. Thus, in the figure, U1 is the optimal point, where the worker will work for 8 hours per day and 16 hours spend for leisure in order to get $16 each day.

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Answer 3

Question

Chapter 2, Problem 1QS

To determine

Indifference curve and budget line in the work-leisure model.

Expert Solution & Answer

Explanation of Solution

An indifference curve in work-leisure model represents the combination of real income and leisure time that provide the same level of satisfaction to the worker.

In work-leisure model, budget line represents all possible combinations of real income and leisure that the worker obtained from the given wage rate.

The indifference curve is downward sloping, which means that it is negatively sloped because the workers are willing to give up leisure time in order to get more income and maintain equal satisfaction. If the time spent on leisure is reduced, income will increase. Thus, the indifference curve will be downward sloping.

Another major feature is that indifference curve is convex to the origin. The convexity implies that the marginal rate of substitution between income and leisure time decreases as a worker moves along the indifference curve, where the marginal rate of substitution indicates that one is given up for another. Thus, the indifference curve is convex to the origin.

The graphical representation of indifference curve and budget line is represented as follows:

Contemporary Labor Economics, Chapter 2, Problem 1QS

In the figure, the horizontal axis represents hours of leisure and work and the vertical axis represents income. The downward sloping curve is the budget line of the worker. IC1, IC2, and IC3 are the indifference curves. The tangent point of budget constraints and indifference curve indicates the optimal choice. Thus, in the figure, U1 is the optimal point, where the worker will work for 8 hours per day and 16 hours spend for leisure in order to get $16 each day.

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Answer 4

Question

Chapter 2, Problem 1QS

To determine

Indifference curve and budget line in the work-leisure model.

Expert Solution & Answer

Explanation of Solution

An indifference curve in work-leisure model represents the combination of real income and leisure time that provide the same level of satisfaction to the worker.

In work-leisure model, budget line represents all possible combinations of real income and leisure that the worker obtained from the given wage rate.

The indifference curve is downward sloping, which means that it is negatively sloped because the workers are willing to give up leisure time in order to get more income and maintain equal satisfaction. If the time spent on leisure is reduced, income will increase. Thus, the indifference curve will be downward sloping.

Another major feature is that indifference curve is convex to the origin. The convexity implies that the marginal rate of substitution between income and leisure time decreases as a worker moves along the indifference curve, where the marginal rate of substitution indicates that one is given up for another. Thus, the indifference curve is convex to the origin.

The graphical representation of indifference curve and budget line is represented as follows:

Contemporary Labor Economics, Chapter 2, Problem 1QS

In the figure, the horizontal axis represents hours of leisure and work and the vertical axis represents income. The downward sloping curve is the budget line of the worker. IC1, IC2, and IC3 are the indifference curves. The tangent point of budget constraints and indifference curve indicates the optimal choice. Thus, in the figure, U1 is the optimal point, where the worker will work for 8 hours per day and 16 hours spend for leisure in order to get $16 each day.

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Answer 5

Chapter 2, Problem 1QS

To determine

Indifference curve and budget line in the work-leisure model.

Expert Solution & Answer

Explanation of Solution

An indifference curve in work-leisure model represents the combination of real income and leisure time that provide the same level of satisfaction to the worker.

In work-leisure model, budget line represents all possible combinations of real income and leisure that the worker obtained from the given wage rate.

The indifference curve is downward sloping, which means that it is negatively sloped because the workers are willing to give up leisure time in order to get more income and maintain equal satisfaction. If the time spent on leisure is reduced, income will increase. Thus, the indifference curve will be downward sloping.

Another major feature is that indifference curve is convex to the origin. The convexity implies that the marginal rate of substitution between income and leisure time decreases as a worker moves along the indifference curve, where the marginal rate of substitution indicates that one is given up for another. Thus, the indifference curve is convex to the origin.

The graphical representation of indifference curve and budget line is represented as follows:

Contemporary Labor Economics, Chapter 2, Problem 1QS

In the figure, the horizontal axis represents hours of leisure and work and the vertical axis represents income. The downward sloping curve is the budget line of the worker. IC1, IC2, and IC3 are the indifference curves. The tangent point of budget constraints and indifference curve indicates the optimal choice. Thus, in the figure, U1 is the optimal point, where the worker will work for 8 hours per day and 16 hours spend for leisure in order to get $16 each day.

Answer 6

Chapter 2, Problem 1QS

To determine

Indifference curve and budget line in the work-leisure model.

Expert Solution & Answer

Explanation of Solution

An indifference curve in work-leisure model represents the combination of real income and leisure time that provide the same level of satisfaction to the worker.

In work-leisure model, budget line represents all possible combinations of real income and leisure that the worker obtained from the given wage rate.

The indifference curve is downward sloping, which means that it is negatively sloped because the workers are willing to give up leisure time in order to get more income and maintain equal satisfaction. If the time spent on leisure is reduced, income will increase. Thus, the indifference curve will be downward sloping.

Another major feature is that indifference curve is convex to the origin. The convexity implies that the marginal rate of substitution between income and leisure time decreases as a worker moves along the indifference curve, where the marginal rate of substitution indicates that one is given up for another. Thus, the indifference curve is convex to the origin.

The graphical representation of indifference curve and budget line is represented as follows:

Contemporary Labor Economics, Chapter 2, Problem 1QS

In the figure, the horizontal axis represents hours of leisure and work and the vertical axis represents income. The downward sloping curve is the budget line of the worker. IC1, IC2, and IC3 are the indifference curves. The tangent point of budget constraints and indifference curve indicates the optimal choice. Thus, in the figure, U1 is the optimal point, where the worker will work for 8 hours per day and 16 hours spend for leisure in order to get $16 each day.

Answer 7

Chapter 2, Problem 1QS

To determine

Indifference curve and budget line in the work-leisure model.

Answer 8

Expert Solution & Answer

Explanation of Solution

An indifference curve in work-leisure model represents the combination of real income and leisure time that provide the same level of satisfaction to the worker.

In work-leisure model, budget line represents all possible combinations of real income and leisure that the worker obtained from the given wage rate.

The indifference curve is downward sloping, which means that it is negatively sloped because the workers are willing to give up leisure time in order to get more income and maintain equal satisfaction. If the time spent on leisure is reduced, income will increase. Thus, the indifference curve will be downward sloping.

Another major feature is that indifference curve is convex to the origin. The convexity implies that the marginal rate of substitution between income and leisure time decreases as a worker moves along the indifference curve, where the marginal rate of substitution indicates that one is given up for another. Thus, the indifference curve is convex to the origin.

The graphical representation of indifference curve and budget line is represented as follows:

Contemporary Labor Economics, Chapter 2, Problem 1QS

In the figure, the horizontal axis represents hours of leisure and work and the vertical axis represents income. The downward sloping curve is the budget line of the worker. IC1, IC2, and IC3 are the indifference curves. The tangent point of budget constraints and indifference curve indicates the optimal choice. Thus, in the figure, U1 is the optimal point, where the worker will work for 8 hours per day and 16 hours spend for leisure in order to get $16 each day.