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QUESTION 8 CHOOSE THE CORRECT ANSWER(S) Figure 3.15 depicts your budget constraint when the hourly wage is $15. Which of the following is (are) true? E A) The slope of the budget constraint is the negative of the wage rate (–15). C B) The budget constraint is a feasible frontier with a constant marginal rate of transformation. C) An increase in the wage rate would cause a parallel upward shift in the budget constraint. I D) A gift of $60 would make the budget constraint steeper, with the intercept on the vertical axis increasing to $300.

QUESTION 8 CHOOSE THE CORRECT ANSWER(S) Figure 3.15 depicts your budget constraint when the hourly wage is $15. Which of the following is (are) true? E A) The slope of the budget constraint is the negative of the wage rate (–15). C B) The budget constraint is a feasible frontier with a constant marginal rate of transformation. C) An increase in the wage rate would cause a parallel upward shift in the budget constraint. I D) A gift of $60 would make the budget constraint steeper, with the intercept on the vertical axis increasing to $300.

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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3.7 Questions You are offered a job in which you can choose any hours you want. You wih b paid 13 dollars per hour. 1. Draw a large (half a sheet of lined paper) budget constraint (feasible set) with income on the y-axis and free time per day on the x-axis. Label the x and y intercepts. Draw the optimal point on your budget constraint at 10 hours of work with an indifference curve passing through it. 2. Draw the effect of a wage increase from 13 to 18 dollars per hour. Label the new y intercept. 3. Draw the effect of social security payment of $30 per day with a wage of $13 per hour. 4. What is the equation of your budget constraint in question 3? 5. If your wage doubles from 12 to 24 dollars per hour, what can we can conclude about your opportunity cost of free time? 6. How does the substitution effect change your choice of free time and why? 7. How does the income effect change your choice of free time and why? QUESTION 8 CHOOSE THE CORRECT ANSWER(S) Figure 3.15 depicts your budget constraint when the hourly wage is $15. Which of the following is (are) true? E A) The slope of the budget constraint is the negative of the wage rate (-15). B) The budget constraint is a feasible frontier with a constant marginal rate of transformation. C) An increase in the wage rate would cause a parallel upward shift in the budget constraint. I D) A gift of $60 would make the budget constraint steeper, with the intercept on the vertical axis increasing to $300.
Transcribed Image Text:3.7 Questions You are offered a job in which you can choose any hours you want. You wih b paid 13 dollars per hour. 1. Draw a large (half a sheet of lined paper) budget constraint (feasible set) with income on the y-axis and free time per day on the x-axis. Label the x and y intercepts. Draw the optimal point on your budget constraint at 10 hours of work with an indifference curve passing through it. 2. Draw the effect of a wage increase from 13 to 18 dollars per hour. Label the new y intercept. 3. Draw the effect of social security payment of $30 per day with a wage of $13 per hour. 4. What is the equation of your budget constraint in question 3? 5. If your wage doubles from 12 to 24 dollars per hour, what can we can conclude about your opportunity cost of free time? 6. How does the substitution effect change your choice of free time and why? 7. How does the income effect change your choice of free time and why? QUESTION 8 CHOOSE THE CORRECT ANSWER(S) Figure 3.15 depicts your budget constraint when the hourly wage is $15. Which of the following is (are) true? E A) The slope of the budget constraint is the negative of the wage rate (-15). B) The budget constraint is a feasible frontier with a constant marginal rate of transformation. C) An increase in the wage rate would cause a parallel upward shift in the budget constraint. I D) A gift of $60 would make the budget constraint steeper, with the intercept on the vertical axis increasing to $300.
While considering this decision, you receive an email. A mysterious benefactor would like to give you an income of $50 a day-for life (all you have to do is provide your banking details.) You realize at once that this will affect your choice of job. The new situation is shown in Figure 3.17: for each level of free time, your total income (earnings plus the mystery gift) is $50 higher than before. So the budget constraint is shifted upwards by $50-the feasible set has expanded. Your budget constraint is now: c = 15(24 - t) + 50 300 IC, 225 150 75 8. 10 12 14 16 18 20 22 24 Hours of free time Hours of work 2 4 6 8 10 12 14 16 Free time, t 24 22 20 18 16 14 12 10 Consumption, c 0 $30 $60 $90 $120 $150 $180 $210 $240 The equation of the budget constraint is c = w(24 - t) The wage is w = $15, so the budget constraint is c = 15(24 – t) Figure 3.15 Your preferred choice of free time and consumption. 4. Your ideal job 2. The slope of the budget constraint The slope of the budget constraint is nstraint Your indifference curves show that your s your budget con- ne maximum amount pu can have for each ideal job would be at point A, with 18 equal to the wage, $15 (in absolute value). This is your MRT (the rate at hours of free time and daily earnings of which you can transform time into con- $90. At this point your MRS is equal to sumption), and it is also the opportunity cost of free time. the slope of the budget constraint, which is the wage ($15). 3. The feasible set The budget constraint is your feasible frontier, and the area below it is the feasible set. Consumption ($)
Transcribed Image Text:While considering this decision, you receive an email. A mysterious benefactor would like to give you an income of $50 a day-for life (all you have to do is provide your banking details.) You realize at once that this will affect your choice of job. The new situation is shown in Figure 3.17: for each level of free time, your total income (earnings plus the mystery gift) is $50 higher than before. So the budget constraint is shifted upwards by $50-the feasible set has expanded. Your budget constraint is now: c = 15(24 - t) + 50 300 IC, 225 150 75 8. 10 12 14 16 18 20 22 24 Hours of free time Hours of work 2 4 6 8 10 12 14 16 Free time, t 24 22 20 18 16 14 12 10 Consumption, c 0 $30 $60 $90 $120 $150 $180 $210 $240 The equation of the budget constraint is c = w(24 - t) The wage is w = $15, so the budget constraint is c = 15(24 – t) Figure 3.15 Your preferred choice of free time and consumption. 4. Your ideal job 2. The slope of the budget constraint The slope of the budget constraint is nstraint Your indifference curves show that your s your budget con- ne maximum amount pu can have for each ideal job would be at point A, with 18 equal to the wage, $15 (in absolute value). This is your MRT (the rate at hours of free time and daily earnings of which you can transform time into con- $90. At this point your MRS is equal to sumption), and it is also the opportunity cost of free time. the slope of the budget constraint, which is the wage ($15). 3. The feasible set The budget constraint is your feasible frontier, and the area below it is the feasible set. Consumption ($)
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