LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Chapter 2, Problem 2P
To determine
Graphically illustrate and identify the features of an indifference curve.
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Suppose your only source of income is work and that you are paid $20 per hour. This determines a budget constraint. You can buy free time at the expense of your income by working less. Likewise, you can get more income at the expense of your free time by working more. Suppose that you can choose how many hours you work.
How do you decide exactly on which point of your budget constraint you will choose? Explain this by referring to your indifference curves.
Moe and Curly both face the same budget line for consumption and leisure. At every possible consumption-leisure bundle on the budget line, Curly always requires marginally more leisure than does Moe in order to be equally happy when asked to forego a dollar of consumption. Using a standard budget line, graph the indifference curves for Moe and Curly that shows the optimal consumption-leisure bundle for both people. Which person optimally chooses more consumption? Which feature of indifference curves guarantees this result?
Suppose Jane spends $48 each month on Oreo cookies with a price of $2 per package, and salt and vinegar chips with a price of $3 per bag. a) With chips on the horizontal axis, draw Jane budget constraint, making sure to indicate the horizontal and vertical intercepts. b) Suppose that at current prices, Jane purchases 6 bags of chips each month. Draw an indifference curve tangent to Jane budget constraint consistent with this choice (assume Jane is maximizing her utility). Label her chosen bundle with the letter A. How many packages of Oreos does Jane buy? c) Suppose that the price of chips falls to $2 per bag, and Jane increases her chip consumption to 8 bags each month. Draw Jane’s new budget constraint and indicate her chosen bundle with an appropriately drawn indifference curve. Label her utility-maximizing bundle with the letter B. (Be sure to determine the right quantities of both chips and Oreos!) d) A major chip producer has experienced a fire, and the disruption of supply has…
Chapter 2 Solutions
LABOR ECONOMICS
Ch. 2 - Prob. 1RQCh. 2 - Prob. 2RQCh. 2 - Prob. 3RQCh. 2 - Prob. 4RQCh. 2 - Prob. 5RQCh. 2 - Prob. 6RQCh. 2 - Prob. 7RQCh. 2 - Prob. 8RQCh. 2 - Prob. 9RQCh. 2 - Prob. 10RQ
Ch. 2 - Prob. 11RQCh. 2 - Prob. 12RQCh. 2 - Prob. 1PCh. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Prob. 4PCh. 2 - Prob. 5PCh. 2 - Prob. 6PCh. 2 - Prob. 7PCh. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - A worker plans to retire at the age of 65, at...Ch. 2 - Prob. 12PCh. 2 - Prob. 13PCh. 2 - Prob. 14PCh. 2 - Prob. 15P
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