Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
Question
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Chapter 16, Problem 16.1P

a)

To determine

To find:

Individual’s full income, number of working hours if 75% income is devoted to leisure.

a)

Expert Solution
Check Mark

Explanation of Solution

Total number of working hours = 8000

Wage per hour = $5

Total income annually :

=8000×5=$40000

Amount sacrificed for leisure = $5

Amount to be spent on leisure :

=0.75×40000=30000

Number of hours for leisure:

=30000$5=6000hours

Number of working hours= Total hours − Leisure Time

=8000-6000hours=2000hours

Total working hours is 2000.

Economics Concept Introduction

Introduction: Envelop theorem states that changes in exogeneous variables must be considered for profit maximizing equations, ignoring the change in endogeneous variable.

b)

To determine

To know:

Number of working hours if 75% income is devoted to leisure when rich uncle dies

b)

Expert Solution
Check Mark

Explanation of Solution

An annual income, which is left by a rich uncle = $4000

Labor income:

Total number of working hours = 8000

Wage per hour = $5

Labor income annually :

=8000×5=$40000

Total income :

=$40000+$4000=$44000

Amount spent on leisure:

=80005900=2100hours

Therefore, number of leisure hours :

=290005=5800hours

So, Work = Total time − Leisure time

=8000hours5800hours=2200hours

Economics Concept Introduction

Introduction: Envelop theorem states that changes in exogeneous variables must be considered for profit maximizing equations, ignoring the change in endogeneous variable.

c)

To determine

To ascertain:

Number of working hours if 75% income is devoted to leisure when hourly wage is $10.

c)

Expert Solution
Check Mark

Explanation of Solution

New wage rate = $10

Non labor income = $4000

Total annual earned income:

=8000×10=$80000

Total income:

=80000+4000=$84000

Amount spent on leisure:

=(0.75×$84000)=$63000

Therefore, time spent on leisure:

=$5900010=5900hours

So, work = Total time − Leisure time

=80005900=2100hours

Economics Concept Introduction

Introduction: Envelop theorem states that changes in exogeneous variables must be considered for profit maximizing equations, ignoring the change in endogeneous variable.

d)

To determine

To Plot:

Graphical representation of supply labor curve..

d)

Expert Solution
Check Mark

Explanation of Solution

The supply curve is shown below in the graph:

Microeconomic Theory, Chapter 16, Problem 16.1P

When the wage rate is $5 per hour, number of working hours is S1500

When the wage rate is $10 per hour, number of working hours is 1650.

Economics Concept Introduction

Introduction: Envelop theorem states that changes in exogeneous variables must be considered for profit maximizing equations, ignoring the change in endogeneous variable.

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