ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- Marley has 100 hours per week available she can spend either working or doing leisure activities. He can work at a wage rate of $50 per hour. Bob receives $1000 of rental income per week, no matter how much he works. Use leisure-income model to solve this:- i) draw Marley budget line and optimal choice of working 80 hours in a week then calculate the maximum and optimal amount of income ii.) And suppose Marley is suppose to share the household expenses and then be taxed 50% of her wage income. then draw another diagram to compare Marley choice in Part i) and the new labour supply decision of working 90 hours per week due to the tax. Clearly label out the income effect, substitution effect and total effect in the diagram.arrow_forwardThe substitution effect of an increase in the wage rate will: O always lead to a decrease in the quantity of labor supplied. O always lead to an increase in the quantity of labor supplied. O lead to an increase in the quantity of labor supplied only if leisure is a normal good. O lead to an increase in the quantity of labor supplied only if leisure is not a normal good. O lead to an increase in the quantity of labor supplied only if the income effect works in the same direction.arrow_forwardHow do you derive that the slope of a budget line is -p1/p2? I'd like to see the mathematical process. Thanks!arrow_forward
- Refer to the following diagram. Point A is 24 hours, C is 14 hours, D is 8 hours, and E is 6 hours. Income B₂ 0 D -Leisure If the current wage rate results in a budget constraint of AB2, how many hours will the individual work?arrow_forwardLarissa consumes at a point on her budget line where her marginal rate of substitution is less than the slope of her budget line (MRS_X,Y < PX/PY). As Larissa moves toward her optimum consumption bundle, her marginal rate of substitution MRS_X,Y will OA. fall. B. rise. OC. stay the same. OD. It is impossible to tell what Larissa's MRSX,Y will do without further information. Reset Selectionarrow_forwardAnne likes to have bagels and orange juice for breakfast. A consumption bundle consists of a quantity of bagels, x (number of bagels), and a quantity of orange juice, y (liters of orange juice). For all of the following questions you can assume that the consumption set is R2+. This means that bagels and orange juice can be consumed in any non-negative quantity. Anne has wealth of $10 to spend. (a) At supermarket-ABC the price of bagels is px = 2$/bagel and the price of orange juice is py = 4$/liter. Draw Anne's budget set when she shops at supermarket-ABC. What is the slope of the budget line? (b) At supermarket-XYZ the price of bagels is qx = 4$/bagel and the price of orange juice is qy = 2$/liter. Draw Anne's budget set if she shops at supermarket-XYZ. What is the slope of the budget line? (c) Supermarket-ABC is on the East Side; supermarket-XYZ is on the West Side; Anne lives in the middle. Suppose that Anne can travel for free to either one of the two supermarkets, but she can only…arrow_forward
- 3) Diminishing marginal rate of substitution can be seen when indifference curves A) become flatter as we move down and to the right. B) are downward sloping. cross. D) are concave. 4) If the consumer's non-labor income increases while wages remain unchanged, what will happen to the budget line? A) The budget line shifts inward without a change in slope. B) The budget line rotates inward from the intercept on the horizontal axis. C) The budget line rotates outward from the intercept on the vertical axis. D) The budget line shifts outward without a change in slope.arrow_forward1. Consider a two-period model in which you work and save in the initial period (period 0) and live off savings and the interest from savings in retirement (period 1). Suppose that income in period 0 is $250,000, income in period 1 is $0, and the interest rate is 50%. a. Draw the budget line. b. Draw an indifference curve consistent with a person whose preferences causes them to equalize their consumption in period 0 and period 1. c. Savings are $_ d. Draw the after-tax budget line if a personal income tax is introduced with a marginal tax rate of t= 40%. e. Suppose that preferences are such that after tax consumption is equalized in period 0 and period 1. On the diagram show after-tax savings. Сі ($x 1,000) 450 400 350 300 250 200 150 100 50 25 50 75 100 125 150 175 200 225 250 275 300 325 350 Со ($ x 1,000)arrow_forwardWe took the case of two goods model. Both of the goods are normal. Explain below the Income Consumption Curve (ICC) in your own words?arrow_forward
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