Question 2-Consider a consumer with utility function U = x1 + x2 12, where is thelabor supplied, x₁ and x2 are the quantity of consumption for good 1 and 2respectively. The price of good 1 and 2 are p₁ and p2 respectively (P1, P2 >0). The consumer cannot spend more than its earning from working, and hasno other source of income. The consumer has an hourly wage rate of w.In the short-run, the consumer has signed a work contract that the workhour is fixed at ī> 0. The consumer cannot consumer negative amount ofquantity of goods.a) Write down the constraints faced by the consumer in the short run.b) Find the utility maximising quantity of consumption for good 1 and 2 inthe short run. Assume p₁ > P₂•c) In the long run, the consumer could choose the labour supply 1, i.e. I isnot fixed and is a choice for the consumer. The consumer cannot work morethan 24 hours a day, and cannot work negative amount of hours. Find theutility maximising quantity of consumption and labour supply. Assume p₁ >P2 and w< 48p2.d) What are the economic assumption(s) implicit in the model? Discuss if theyare reasonable assumptions.

Step 1:a)The constraints faced by the consumer in the short run are: Budget constraint: The consumer…

Answered: Question 2 - Consider a consumer with…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Jack's marginal utility of consumption is MUc = L - 6, and the marginal utility of leisure is MUL=C-40. Jack does not have any nonlabor income, i.e., V = 0. Jack faces a $48 an hour wage rate. Jack's total number of hours available per week is 150. What is Jack's optimal choice of consumption? (calculate to 2 decimal places)
23. A worker has utility over consumption c and leisure I given by U(c,1) = a 6-6 + 18 where 0 << 1 She has T hours to allocate between leisure and work. For each hour she works, she earns a wage of w to spend on consumption c. The price of c is 1. She also receives an additional 'non-labor income' m regardless of how much she works. She maximizes utility subject to the following constraints: contact@cloure.m Assume interior solution, then cw(T-1) +m C≥O 0≤1≤T A. c is normal and I is inferior good. B. c is inferior and I is inferior good. C. c is inferior and I is normal good. D. c is normal and I is normal good. Page 8
21. Let U=x 2 +y 2 is the utility function of a worker who has 10 hours that to be allocatedbetween labour supply (L) and leisure (x). Let y is a consumption good whose price is 1.Wage rate (w) is Rs 1 and non-wage income is 20. Find out L.a) 10 b) 0 c) 5 d) 8 e) none 22. On the basis of the above question, hen w=0 and non-wage income is 40, find out L.a) 10 b) 0 c) 5 d) 8 e) none
Jones, without a job or job prospects, has been on social assistance for the past four months. Social assistance pays a basic benefit of $600 a month with a benefit reduction rate of 75 percent for earned income. Her welfare benefit is given as B = 600 - 0.75E, where E represents monthly earnings. Jones has just been offered a part-time job working 5 hours a day, 5 days a week, earning an hourly wage of $11. Sketch a budget constraint for Jones given the social assistance scheme in place and the wage rate available for part time work. How much income would she earn if she accepted the job? Would Jones still be on social assistance if she took the job? Draw the budget constraint.
Assuming we have a choice where we work and how many hours we want to work, what determines the number of hours we will work? Marginal changes in our opportunity cost (utility) of leisure as income increases (the substitution effect) Marginal changes in the utility of our income as total income changes (the income effect) It is based on how much money we need to meet our basic needs A combination of A and B
just subparts g and h
In any given week, Anne receives satisfaction only from the consumption of goods and from the consumption of leisure L, which is measured in hours. Obviously, Anne consumes many different types of goods, but for simplicity we aggregate the dollar value of all the goods that she consumes during the week and call it C. Assume that if Anne chooses to work, the hourly wage rate is w=9 and she has to sleep 8 hours per day. (Sleeping time is not considered leisure.) Potentially, if she wants, she can work up to 7 days a week.
Consider a worker who consumes one good and has a preference for leisure. She maximizes the utility function u(x, L) = xL, where a represents consumption of the good and L represents leisure. Suppose that this worker can choose any L = [0, 1], and receives income w(1 L); w represents the wage rate. Let p denote the price of the consumption good. In addition to her wage income, the worker also has a fixed income of y ≥ 0. (a) Write down the utility maximization problem for this consumer. (b) Find the Marshallian demands for the consumption good and leisure. (c) Find the indirect utility as a function of p, w, and y.
QUESTION 7: Budget constraints Everyone is endowed with 168 hours in a week (24X7). If you work 40 hours or less, you w=$20 per hour. If you work overtime, you earn w-$25. Assume the worker has M= non-labor income and that the price of the consumption good is p. Draw the budget constraint. Label the intercepts and the slopes in both the overtime and non-overtime region.

Recommended textbooks for you

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

Principles of Economics (MindTap Course List)

Economics

ISBN:

9781305585126

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…

Economics

ISBN:

9781259290619

Author:

Michael Baye, Jeff Prince

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS