Utility maximization - Trading off labor and leisure The indifference curves on the following graph show Simone’s preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Simone 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 50 hours (and thus has 50 hours of leisure) and earns $400 per week. Use the grey point (star symbol) to indicate Simone’s initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. [Please see the image attached] Now, suppose that Simone is laid off, but she is eligible to collect unemployment benefits of $350 per week. Use the black point (cross symbol) to represent Simone’s unemployment point on the previous graph when she consumes $350 per week and has 100 hours of leisure. Suppose that after a month of being unemployed, Simone’s friend Rajiv suggests that she apply for a job at his company, where she could earn her previous salary again by working 50 hours per week. True or False: Because Simone is on a lower indifference curve while receiving unemployment benefits than she was when she was employed, she would be better off working at her friend’s company than she is remaining unemployed. On the previous graph, use the green point (triangle symbol) to indicate the minimum weekly salary (an equivalent bundle) that would make Simone as well off working 50 hours per week as she is when unemployed and collecting $350 in benefits. Now, suppose that the government enacts reforms that reduce unemployment compensation to $200 per week for Simone. On the previous graph, use the orange point (square symbol) to represent Simone’s new leisure/consumption bundle when she consumes $200 per week and has 100 hours of leisure. Then use the blue point (circle symbol) to indicate the minimum weekly salary (an equivalent bundle) that would make Simone as well off working 50 hours per week as she is when unemployed and collecting only $200 in benefits. Complete the following table by entering the minimum weekly salary that would make Simone as well off working 50 hours per week as she is when unemployed and collecting the unemployment benefits listed in the following table. Unemployment Benefits Equivalent Bundle Salary (Dollars per week) (Dollars per week) 350.00 200.00 The decrease in unemployment benefits makes Simone ____ likely to accept a job; therefore, based on this example, you would expect that a decrease in benefits would cause ____ workers who are currently collecting unemployment benefits to accept job offers.

Utility maximization - Trading off labor and leisure The indifference curves on the following graph show Simone’s preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Simone 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 50 hours (and thus has 50 hours of leisure) and earns $400 per week. Use the grey point (star symbol) to indicate Simone’s initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes. [Please see the image attached] Now, suppose that Simone is laid off, but she is eligible to collect unemployment benefits of $350 per week. Use the black point (cross symbol) to represent Simone’s unemployment point on the previous graph when she consumes $350 per week and has 100 hours of leisure. Suppose that after a month of being unemployed, Simone’s friend Rajiv suggests that she apply for a job at his company, where she could earn her previous salary again by working 50 hours per week. True or False: Because Simone is on a lower indifference curve while receiving unemployment benefits than she was when she was employed, she would be better off working at her friend’s company than she is remaining unemployed. On the previous graph, use the green point (triangle symbol) to indicate the minimum weekly salary (an equivalent bundle) that would make Simone as well off working 50 hours per week as she is when unemployed and collecting $350 in benefits. Now, suppose that the government enacts reforms that reduce unemployment compensation to $200 per week for Simone. On the previous graph, use the orange point (square symbol) to represent Simone’s new leisure/consumption bundle when she consumes $200 per week and has 100 hours of leisure. Then use the blue point (circle symbol) to indicate the minimum weekly salary (an equivalent bundle) that would make Simone as well off working 50 hours per week as she is when unemployed and collecting only $200 in benefits. Complete the following table by entering the minimum weekly salary that would make Simone as well off working 50 hours per week as she is when unemployed and collecting the unemployment benefits listed in the following table. Unemployment Benefits Equivalent Bundle Salary (Dollars per week) (Dollars per week) 350.00 200.00 The decrease in unemployment benefits makes Simone likely to accept a job; therefore, based on this example, you would expect that a decrease in benefits would cause workers who are currently collecting unemployment benefits to accept job offers.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Utility maximization - Trading off labor and leisure

The indifference curves on the following graph show Simone’s preferences for leisure and consumption for increasing levels of utility, such that her utility increases in both consumption and leisure. Assuming that Simone 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 50 hours (and thus has 50 hours of leisure) and earns $400 per week.

Use the grey point (star symbol) to indicate Simone’s initial leisure/consumption bundle. Dashed drop lines will automatically extend to both axes.

[Please see the image attached]

Now, suppose that Simone is laid off, but she is eligible to collect unemployment benefits of $350 per week.

Use the black point (cross symbol) to represent Simone’s unemployment point on the previous graph when she consumes $350 per week and has 100 hours of leisure.

Suppose that after a month of being unemployed, Simone’s friend Rajiv suggests that she apply for a job at his company, where she could earn her previous salary again by working 50 hours per week.

True or False: Because Simone is on a lower indifference curve while receiving unemployment benefits than she was when she was employed, she would be better off working at her friend’s company than she is remaining unemployed.

On the previous graph, use the green point (triangle symbol) to indicate the minimum weekly salary (an equivalent bundle) that would make Simone as well off working 50 hours per week as she is when unemployed and collecting $350 in benefits.

Now, suppose that the government enacts reforms that reduce unemployment compensation to $200 per week for Simone.

On the previous graph, use the orange point (square symbol) to represent Simone’s new leisure/consumption bundle when she consumes $200 per week and has 100 hours of leisure. Then use the blue point (circle symbol) to indicate the minimum weekly salary (an equivalent bundle) that would make Simone as well off working 50 hours per week as she is when unemployed and collecting only $200 in benefits.

Complete the following table by entering the minimum weekly salary that would make Simone as well off working 50 hours per week as she is when unemployed and collecting the unemployment benefits listed in the following table.

Unemployment Benefits	Equivalent Bundle Salary
(Dollars per week)	(Dollars per week)
350.00
200.00

The decrease in unemployment benefits makes Simone ____ likely to accept a job; therefore, based on this example, you would expect that a decrease in benefits would cause ____ workers who are currently collecting unemployment benefits to accept job offers.

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