1. TRUE / FALSE: Household decisions depend on the real values for wages and rent rather than the nominal values for wages and rent. On the Source of funds side of the household budget constraint what 2 sources can a household get their their income from 2. 3.
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- 4. Sketch the following budget constraints: PX PY Income A RO 50 100 RO 5000 100 150 5000 50 200 2000 D 20 8. 800Garfield enjoys pizzas and hanging out (leisure). He sleeps 8 hours per day. Of the remaining16 hours, for each hour he chooses to work he gets paid 2 pizzas. Garfield must pay 6 pizzas intaxes but receives dividends equivalent to 6 pizzas.1. Draw Garfield’s budget constraint (put consumption on the vertical axis and leisure of thehorizontal). Make sure to show the vertical and horizontal intercepts as well as the slope.b. Now suppose that Garfield chooses to work 10 hours per day. Find how many hoursof leisure and how many pizzas he will consume.c. Using your answer from b, show Garfield’s optimal point on the budget line and drawthe indifference curve passing from that point.4. Suppose that Garfield’s wage falls to 1 pizza per hour. Draw Garfield’s new budgetconstraint. Make sure to show the value of any intercept that has changed.5. Suppose that in response, Garfield decides to work for 6 hours per day. How much leisurewill he take, and how much pizza will he consume?6. Use an…Garfield enjoys pizzas and hanging out (leisure). He sleeps 8 hours per day. Of the remaining16 hours, for each hour he chooses to work he gets paid 2 pizzas. Garfield must pay 6 pizzas intaxes but receives dividends equivalent to 6 pizzas.1. Draw Garfield’s budget constraint (put consumption on the vertical axis and leisure of thehorizontal). Make sure to show the vertical and horizontal intercepts as well as the slope.b. Now suppose that Garfield chooses to work 10 hours per day. Find how many hoursof leisure and how many pizzas he will consume.c. Using your answer from b, show Garfield’s optimal point on the budget line and drawthe indifference curve passing from that point.4. Suppose that Garfield’s wage falls to 1 pizza per hour. Draw Garfield’s new budgetconstraint. Make sure to show the value of any intercept that has changed.5. Suppose that in response, Garfield decides to work for 6 hours per day. How much leisurewill he take, and how much pizza will he consume?6. Use an…
- Consider Figure 10.4 from The Economy, which depicts Julia's choice over consumption now and consumption later. She has no income now and an income of $100 later. Ma's endown Consumption later (5) 100 82 FF C10% interest rate) FF interest rate) 35 All's IC (higher uity) MATIC Ma's Cough point ) Ali's Cower uni 91 56 58 Consumption now (5) [If the image above doesn't appear click here to open it in a new tab.] If the current interest rate is 78%, which of the following statements is correct? Select all correct answers. Ewould be an optimal choice for Julia, as she would be able to completely smooth her consumption over the two periods by consuming exactly the same amount in each Her indifference curves show that Julia would prefer to take all of the consumption now rather than some in each period. At G. Julia is on the highest possible indifference curve given her feasible set. DE is not a feasible choice for Julia given the current interest rate At F, the interest rate exceeds Julia's…Af a family's MPS is 0.2. it means that the family is: O a. Saving $0.2 O6 Saving 20 percent of its income Oc Consuming 80 percent of its income O d. Saving 20 percent of any additional income2. James is an undergraduate student who has £800 of income to spend each semester on pizza and books. The price of a pizza is £8 and the price of a book is £40. (a)ln a diagram with pizza on the vertical axis and books on the horizontal axis, draw James's budget constraint. (b)Now suppose James's parents buy him a £400 gift voucher each semester that can only be used to buy books. In the same diagram for part (a), draw James's budget constraint when he has the gift voucher in addition to his £800 income. (c)ls James better-off with the gift voucher? Explain your answer.
- 1. Which of the following represents the household's lifetime budget constraint? a. q +a₂ = 1 b. c₂ = 1/₂+(1+m₂)a₂ c₁+c₂/(1+₂) = 1 +32/(1+12) d. U = Inc + Blnc₂ 2. Which of the following are choice variables of the household? a. Yl b. y2 C₁ d. 12 3. If the household can borrow and lend, an increase in y₁ causes which of the following to increase? a. C1 C2 c. 92 d. all of the above 4. For a household that can borrow and lend, the horizontal intercept of a sketch of the lifetime budget constraint is a. Y1 by₁+ 1 y2 1+12 c. Y2 d. (1+12)y1+y2 5. Suppose a household can borrow and lend in a perfectly competitive credit market. Assume B=0.2 and r2 = 0.10. The value for the optimal choice of a2 when y₁ = 10 and y2 = 0 is a. 1.67 b. 0.00 c. -5.91 (d)-7.58Explain how does adecrease in the current income y affect the consumer’s consumption-saving decision. In particular,explain: 1) How will current consumption c, future consumption c', and savings s change; 2) Arethere any substitution effect or income effect. Make sure you draw two figures, one for the borrowersand one for the lenders.3rian earns income equal to $82,000 in the first period, but his income will drop to $19,170 in the second period. a Sketch his intertemporal budget constraint, ansuming a 6.5% interest rate. Add an indifference curve that assumes he optimally chooses to save $40,000 in the first period. Be sure to CLEARLY graph your answer, with labeln on the axes and any other important points. Also show work for any calculations done. b. Show the offect of a 50% tax on interest income, assuming the substitution and income effects cancel each other out. Again, be sure to clearly graph your answer and show work for any calculations done.
- 2 (a) Explain how a consumer allocates expenditure according to the principle of equi-marginal utility and analyse how a change in income might affect that allocation. (b) Discuss how a government might achieve a more equal distribution of income.Q-4 Suppose that Kaleed’s income 1800 RO. And he purchased 30 units of goods y that cost 30 RO per unit. Calculate how many units Kaleed can buy of product X when it costs 20 RO.Explain how does adecrease in the current income y affect the consumer’s consumption-saving decision. In particular,explain: 1) How will current consumption c, future consumption c′, and savings s change; 2) Arethere any substitution effect or income effect. Make sure you draw two figures, one for the borrowersand one for the lenders
