per week as you wish at a wage rate of $8 per hour. Since you are trying to earn some money to finance your summer travel plans, you choose to work for 30 hours a week. Your concerned parents contribute a weekly allowance of $120. You have strictly convex preferences and a maximum of 100 hours a week to allocate between work and relaxation (leisure). 1. Illustrate this scenario with a neat and fully labeled graph. You must include both your budget constraint and your indifference curve- obviously! 2. Now suppose that Lafayette is succumbing to pressures to increase student wages to $12 per hour. As a result, your parents are no longer concerned about your financial health and are cutting your allowance to zero. Tough luck! a. This, of course, will change your budget constraint. Add the budget line you now face to your graph. Pay attention to where the BLs intersect. b. Will you continue to work 30 hours? Why or why not? Illustrate. c. Will you now be better, worse or the same off? Or is the outcome ambiguous? Explain.

per week as you wish at a wage rate of $8 per hour. Since you are trying to earn some money to finance your summer travel plans, you choose to work for 30 hours a week. Your concerned parents contribute a weekly allowance of $120. You have strictly convex preferences and a maximum of 100 hours a week to allocate between work and relaxation (leisure). 1. Illustrate this scenario with a neat and fully labeled graph. You must include both your budget constraint and your indifference curve- obviously! 2. Now suppose that Lafayette is succumbing to pressures to increase student wages to $12 per hour. As a result, your parents are no longer concerned about your financial health and are cutting your allowance to zero. Tough luck! a. This, of course, will change your budget constraint. Add the budget line you now face to your graph. Pay attention to where the BLs intersect. b. Will you continue to work 30 hours? Why or why not? Illustrate. c. Will you now be better, worse or the same off? Or is the outcome ambiguous? Explain.

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

Labor-Leisure Choice Exercise
As a Lafayette student, you have the option of working on campus for as many hours
per week as you wish at a wage rate of $8 per hour. Since you are trying to earn some
money to finance your summer travel plans, you choose to work for 30 hours a week.
Your concerned parents contribute a weekly allowance of $120.
You have strictly convex preferences and a maximum of 100 hours a week to allocate
between work and relaxation (leisure).
1. Illustrate this scenario with a neat and fully labeled graph. You must include both
your budget constraint and your indifference curve - obviously!
2. Now suppose that Lafayette is succumbing to pressures to increase student wages to
$12 per hour. As a result, your parents are no longer concerned about your financial
health and are cutting your allowance to zero. Tough luck!
a. This, of course, will change your budget constraint. Add the budget line you now
face to your graph. Pay attention to where the BLs intersect.
b. Will you continue to work 30 hours? Why or why not? Illustrate.
c. Will you now be better, worse or the same off? Or is the outcome ambiguous?
Explain.

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