2. Utility maximization - Trading off labor and leisureThe indifference curves on the following graph show Terese's preferences for leisure and consumption for increasinglevels of utility, such that her utility increases in both consumption and leisure. Assuming that Terese spends 68hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all.Initially, she works 20 hours (and thus has 80 hours of leisure) and earns $450 a week. Use the red point (crosssymbol) to indicate Terese's initial leisure/consumption bundle. Dashed drop lines will automatically extend to bothaxes.CONSUMPTION (Dollars per week)30002400180012006000U1U220U340Initial BundleUnemployed 1Ķ--Unemployed 2Aa Aa6080100LEISURE (Hours per week) Help Clear AllNow, suppose that Terese is laid off due to hard economic times, but she is able to collect unemployment benefits of$400 a week. Use the black point (X symbol) to represent Terese's unemployment point on the previous graph whenshe consumes $400 a week and has 100 hours of leisure. Suppose that after a month of Terese's being unemployed, her friend suggests that she apply for a job at hercompany, where she could earn her previous salary again, working 20 hours a week. Because Terese is onutility curve while receiving unemployment benefits than she was when she was employed, sheworking at her friend's company than she is remaining unemployed.would beThe minimum weekly salary that would make Terese as well off working 20 hours a week as she is when unemployedand collecting benefits isNow, suppose that the government enacts reforms that reduce unemployment compensation to $200 per week forTerese. On the previous graph, use the grey point (star symbol) to represent Terese's new unemployment point whenshe consumes $200 a week and has 100 hours of leisure. The minimum weekly salary that would now make Tereseas well off working 20 hours a week as she is when unemployed and collecting benefits islikely to accept a job; therefore, based on this example, youworkers who are currently collectingThe decrease in benefits makes Teresewould expect that a decrease in benefits would causeunemployment benefits to accept job offers.

Consumer labor-leisure choice is a fundamental concept in economics that analyzes how individuals…

The indifference curves on the following graph show Terese's preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Terese spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 20 hours (and thus has 80 hours of leisure) and earns $450 a week. Use the red point (cross symbol) to indicate Terese's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. CONSUMPTION (Dollars per week) 3000 T 112 T Initial Bundle

The indifference curves on the following graph show Terese's preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Terese spends 68 hours each week sleeping, she has a maximum of 100 hours available to her for leisure if she does not work at all. Initially, she works 20 hours (and thus has 80 hours of leisure) and earns $450 a week. Use the red point (cross symbol) to indicate Terese's initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. CONSUMPTION (Dollars per week) 3000 T 112 T Initial Bundle

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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