Please help me solving the following sub question please inform me of what the elements of the diagram you draw mean please.I added a diagram just to possibly help you solve the question but I am not sure if it is correct please label the diagram you complete so I can understand fully.Thank you Only 6 c please IC,300Substitutioneffect22515075IncomeeffectOveralleffect1012141618202224Hours of free timeThe sum of the income and substitution effectsThe overall effect of the wage rise depends on the sum of the income and substitutioneffects. In this case the substitution effect is bigger, so with the higher wage you take lessfree time.Figure 3.19b The effect of a wage rise on your choice of free time and consumption.Consumption ($)C. 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.

Utility represents the satisfaction an individual derives from consuming goods and services. It's a…

Answered: c) Use indifference curves and the…

c) Use indifference curves and the feasible set to show why, given the properties of the optimal choice in part b), it is not optimal to work, say, 10, or 6 hours per day. (continued on next slide)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.8P

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