5. A consumer dislikes good 1, and dislikes good 2. Show these preferences on a suitably labelled graph with an indifference curve. Label the graph: which areas would be preferred to those on the line?

5. A consumer dislikes good 1, and dislikes good 2. Show these preferences on a suitably labelled graph with an indifference curve. Label the graph: which areas would be preferred to those on the line?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Answer question 5

A: Key concepts
1. What does it mean for preferences to be "complete"
2. What does it mean for goods to be perfect compliments? Give one example.
B: Theory: Budget constraints and preferences
3. A consumer has a budget of £12 to split between two goods: good 1 has a price of 2, good 2
has a price of 3. Write the consumer's budget constraint algebraically. Convert this budget
constraint into the formula for the budget line. Show this line on a suitably labelled graph.
4. The consumer's budget increases to £24. Show the effect of this change graphically.
5. A consumer dislikes good 1, and dislikes good 2. Show these preferences on a suitably
labelled graph with an indifference curve. Label the graph: which areas would be preferred
to those on the line?
Section two-theory and policy
C: French 35 hour working week
6. In 1999, the French minimum wage was around 50 francs. Describe the (francs / hours of
leisure) trade-off for a French minimum wage worker algebraically and graphically, showing
the connection between the two. (Note: Assume there are 170 hours in a week.)
7. The unemployment rate at the time was 10%, and a confederation of large businesses
campaigned for a reduction in the minimum wage from 50 francs to 30 francs. How would
this affect the budget set of a minimum wage worker?

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