There are two consumers, Cindy and Shelly. Cindy’s marginal rate of substitution equals C/L. Shelly’s marginal rate of substitution equals (C – 200)/(L – 80). Assume that each person chooses not to work and that there are 168 hours in a given week. Since Cindy and Shelly are not working, they qualify for welfare. Assume each individual earns $630 in welfare payments each week whether they work or not. (a) Given these numbers, calculate each person’s MRS. Show your work. (b) Using your answer from part (a), graph Cindy’s and Shelly’s indifference curves on the same set of axes. Label everything. (c) Assume Cindy and Shelly are each offered a job, and they each could earn the same real wage. Given your answer from part (a), who is more likely to take the job and why?
There are two consumers, Cindy and Shelly. Cindy’s marginal rate of substitution equals C/L.
Shelly’s marginal rate of substitution equals (C – 200)/(L – 80). Assume that each person
chooses not to work and that there are 168 hours in a given week. Since Cindy and Shelly are
not working, they qualify for welfare. Assume each individual earns $630 in welfare payments
each week whether they work or not.
(a) Given these numbers, calculate each person’s MRS. Show your work.
(b) Using your answer from part (a), graph Cindy’s and Shelly’s indifference
the same set of axes. Label everything.
(c) Assume Cindy and Shelly are each offered a job, and they each could earn the same
real wage. Given your answer from part (a), who is more likely to take the job and
why?
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