Chapter 19A, Problem 2P

To determine

1. Florence’s time allocation budget line and indifference curve at optimal choice.
2. Florence’s new budget line and indifference curve due to change in wage rate.
3. Income and substitution effect.

Concept determination:

Indifference curve − An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. It represents how much value an individual receives from various combinations of consumption. An individual does not have just one indifference curve. They will have an identically shaped curve at different level of incomes.

Budget line on the other hand is graphical representation of all possible combination of two goods which can be purchased with a given income and prices.