Assume that Anne's wage is 8 units an hour, and she has 12 hours a day to either stay at home or spend working. a). Derive her budget constraint and illustrate it on the well-labelled graph. Also, illustrate Anne's indifference curve if, given that wage, she prefers to work 7 hours a day. Please show all your steps and label the graphs. b). Now, assume that Anne's wage got increased to 10 units an hour, and substitution effect is greater than income effect. Derive a new budget constraint and illustrate all those changes in the graph. Please show all your steps and label the graphs. c). Now assume, that our Anne has inherited a nice condo and decided to start renting it out (this is to say, that she got some non-earned income). The level of this income is equivalent to 30 units of market output. Illustrate this on a graph and now assume that Anne decided to go back to working only 7 hours a day. Please explain and show all your steps and label the graphs.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Assume that Anne's wage is 8 units an hour, and
she has 12 hours a day to either stay at home or
spend working.
a). Derive her budget constraint and illustrate it
on the well-labelled graph. Also, illustrate Anne's
indifference curve if, given that wage, she
prefers to work 7 hours a day. Please show all
your steps and label the graphs.
b). Now, assume that Anne's wage got increased
to 10 units an hour, and substitution effect is
greater than income effect. Derive a new budget
constraint and illustrate all those changes in the
graph. Please show all your steps and label the
graphs.
c). Now assume, that our Anne has inherited a
nice condo and decided to start renting it out
(this is to say, that she got some non-earned
income). The level of this income is equivalent to
30 units of market output. Illustrate this on a
graph and now assume that Anne decided to go
back to working only 7 hours a day. Please
explain and show all your steps and label the
graphs.
Transcribed Image Text:Assume that Anne's wage is 8 units an hour, and she has 12 hours a day to either stay at home or spend working. a). Derive her budget constraint and illustrate it on the well-labelled graph. Also, illustrate Anne's indifference curve if, given that wage, she prefers to work 7 hours a day. Please show all your steps and label the graphs. b). Now, assume that Anne's wage got increased to 10 units an hour, and substitution effect is greater than income effect. Derive a new budget constraint and illustrate all those changes in the graph. Please show all your steps and label the graphs. c). Now assume, that our Anne has inherited a nice condo and decided to start renting it out (this is to say, that she got some non-earned income). The level of this income is equivalent to 30 units of market output. Illustrate this on a graph and now assume that Anne decided to go back to working only 7 hours a day. Please explain and show all your steps and label the graphs.
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