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B.3. Assume you can work as many hours you wish at £10 per hour (net of tax). If you do not work you have no income. You have no ability to borrow or lend, so your consumption, c, is simply equal to your income. a) Assume that your optimal choice of consumption and leisure is to work 8 hours per day. Illustrate this choice diagrammatically using the feasible set and indifference curves, defined in terms of daily values of consumption c, and "leisure", I= 24 minus hours worked.. b) Now assume that you receive non-labour income of £70 per week (i.e. irrespective of how much you work). Show the impact on your feasible set, and show a new optimal choice in which consumption increases but labour supply decreases. Explain how such a change can be related to the properties of the Marginal Rate of Substitution c) Show that, for a sufficiently large non-labour income, it may be optimal not to work at all. Assuming this is the case, what would be the impact of an increase in your hourly wage"

B.3. Assume you can work as many hours you wish at £10 per hour (net of tax). If you do not work you have no income. You have no ability to borrow or lend, so your consumption, c, is simply equal to your income. a) Assume that your optimal choice of consumption and leisure is to work 8 hours per day. Illustrate this choice diagrammatically using the feasible set and indifference curves, defined in terms of daily values of consumption c, and "leisure", I= 24 minus hours worked.. b) Now assume that you receive non-labour income of £70 per week (i.e. irrespective of how much you work). Show the impact on your feasible set, and show a new optimal choice in which consumption increases but labour supply decreases. Explain how such a change can be related to the properties of the Marginal Rate of Substitution c) Show that, for a sufficiently large non-labour income, it may be optimal not to work at all. Assuming this is the case, what would be the impact of an increase in your hourly wage"

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Answer ALL questions in this section Assume you can work as many hours you wish at £10 per hour (net of tax). If you do not work you have no income. You have no ability to borrow or lend, so your consumption, c, is simply equal to your income. В.3. В.1. a) A profit-maximising firm faces a downward-sloping demand curve for its output and has marginal costs that increase with output. Show, on a single diagram, how its profit maximisation decision can be represented both in terms of a feasible set optimisation and its marginal revenue and marginal cost. Why is there a deadweight a) Assume that your optimal choice of consumption and leisure is to work 8 hours per day. Illustrate this choice diagrammatically using the feasible set and indifference curves, defined in terms of daily values of consumption c, and "leisure", l= 24 minus loss in this case hours worked. b) Now assume the firın Is à cypical firm in a perfectly competitive market. Show the firm's optimal choice alongside the market equilibrium, and briefly explain why there is no deadweight loss in this case. b) Now assume that you receive non-labour income of £70 per week (i.e. irrespective of how much you work). Show the impact on your feasible set, and show a new optimal choice in which consumption increases but labour supply decreases. Explain how such a change can be related to the properties of the Marginal Rate of Substitution/´ c) Assume an initial equilibrium in which the firın in part b) is making a loss. Explain how the market and a typical surviving firm will adjust in these circumstances so that normal profits will be made. You should illustrate your answer diagrammatically. c) Show that, for a sufficiently large non-labour income, it may be optimal not to work at all. Assuming this is the case, what would be the impact of an increase in your hourly wage В.2. В.4. a) Explain why individuals may try to smooth their consumption over their lifetime. Illustrate this concept with a diagram. a) Given a production function relating labour input to output, show diagrammatically the impact of an improvement in technology on total output and the average product b) Explain how borrowing constraints can impede the process of consumption smoothing. If many households are affected by such constraints, explain how this may result in a “Keynesian" consumption function. of labour b) Using a diagram, show how, in a Malthusian model, a one-off improvement in technology, as in part a), will only have a temporary impact on living standards. c) In a closed economy Keynesian Cross framework show how a decline in investment will lead to a fall in income. Explain the role of the consumption function and the multiplier in this process. c) Use tne same diagrammatic framework to explain the role of technological improvements, capital and demographic responses, in the historical experience of countries that have escaped from the Malthusian trap ( ^
Transcribed Image Text:Answer ALL questions in this section Assume you can work as many hours you wish at £10 per hour (net of tax). If you do not work you have no income. You have no ability to borrow or lend, so your consumption, c, is simply equal to your income. В.3. В.1. a) A profit-maximising firm faces a downward-sloping demand curve for its output and has marginal costs that increase with output. Show, on a single diagram, how its profit maximisation decision can be represented both in terms of a feasible set optimisation and its marginal revenue and marginal cost. Why is there a deadweight a) Assume that your optimal choice of consumption and leisure is to work 8 hours per day. Illustrate this choice diagrammatically using the feasible set and indifference curves, defined in terms of daily values of consumption c, and "leisure", l= 24 minus loss in this case hours worked. b) Now assume the firın Is à cypical firm in a perfectly competitive market. Show the firm's optimal choice alongside the market equilibrium, and briefly explain why there is no deadweight loss in this case. b) Now assume that you receive non-labour income of £70 per week (i.e. irrespective of how much you work). Show the impact on your feasible set, and show a new optimal choice in which consumption increases but labour supply decreases. Explain how such a change can be related to the properties of the Marginal Rate of Substitution/´ c) Assume an initial equilibrium in which the firın in part b) is making a loss. Explain how the market and a typical surviving firm will adjust in these circumstances so that normal profits will be made. You should illustrate your answer diagrammatically. c) Show that, for a sufficiently large non-labour income, it may be optimal not to work at all. Assuming this is the case, what would be the impact of an increase in your hourly wage В.2. В.4. a) Explain why individuals may try to smooth their consumption over their lifetime. Illustrate this concept with a diagram. a) Given a production function relating labour input to output, show diagrammatically the impact of an improvement in technology on total output and the average product b) Explain how borrowing constraints can impede the process of consumption smoothing. If many households are affected by such constraints, explain how this may result in a “Keynesian" consumption function. of labour b) Using a diagram, show how, in a Malthusian model, a one-off improvement in technology, as in part a), will only have a temporary impact on living standards. c) In a closed economy Keynesian Cross framework show how a decline in investment will lead to a fall in income. Explain the role of the consumption function and the multiplier in this process. c) Use tne same diagrammatic framework to explain the role of technological improvements, capital and demographic responses, in the historical experience of countries that have escaped from the Malthusian trap ( ^
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