EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Question
Chapter 13A.1, Problem 1TTA
To determine
To describe: The reason behind the fact that the theory of choice and studies of urban transit choice do not view the marginal rate of substitution similarly.
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Jack's marginal utility of consumption is MUc = L - 6, and the marginal utility of leisure is MUL=C-40. Jack does not have any nonlabor income, i.e., V = 0. Jack faces a $48 an hour wage rate. Jack's total number of hours available per week is 150. What is Jack's optimal choice of consumption? (calculate to 2 decimal places)
a) Chika has calculated the marginal utility that she derives from her paid employment and from leisure. This is presented in table
below. In her ideal world, where she could work as few or as many hours as she wished, how would she allocate her sixteen waking
hours? (She does need to sleep.)
Hours
1
2
3
4
5
6
7
8
9
10
MU Paid
Employment
105
95
85
75
65
55
45
35
25
15
MU
Leisure
100
90
80
70
60
50
40
30
20
10
hours working and
b) Unfortunately, Chika begins to realize that unless she gets an education she will not enjoy a high salary and therefore, will not be
able to afford more leisure time. She therefore decides to spend six hours each day studying (in addition to her eight hours of sleep).
How will she now divide the remaining hours between work and leisure?
hours working and
hours leisure.
hours leisure.
Winona has 80 hours to divide between leisure and labor. Her utility function is u(r,c) = f(r) + c, when r represents hours of leisure,c represents dollars of consumption, and f is strictly concave. Winona’s wage is w0= $15/hr. initially, then it rises to w1= $20/hr.
(i) Explain what happens to Winona’s labor supply when the wage rises,and why.
(ii) Explain how the answer to (i) would change if Winona were to win a lottery.
Chapter 13A Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
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- a) If Kyeiwaa has GhC 50 of non-labor income per week, and she faces a market wage rate of GhC 5 per hour; and has 110 hours of nonsleeping hours to allocate between work and leisure activities (assuming she sleeps roughly 8hours per day) b) Write down the budget equation for Kyeiwaa c) Graph Kyeiwaa 's budget line. d) Assuming leisure is a normal good (with the aid of a graph), describe what will happen to Kyeiwaa 's hours of work if her non-labour income increases. e) If Kyeiwaa 's substitution effect dominates her income effect, with the aid of a diagram describe what will happen to her hours of work when her wage increases.arrow_forwardConsider an individual who is paid a constant hourly wage and is deciding how many hours to spend working and how many to take as free time per week. Which of the following statements are correct? Select all the correct answers. □ If the wage increased, this would decrease the opportunity cost of leisure time If the wage increased and the substitution effect dominates, the individual will choose to have less free time If the wage increased and the individual chooses to work the same hours, the income effect and substitution effects are both zero If the wage increased and the income effect dominates, the individual will choose to have more free timearrow_forwardDiscuss the possible substitution effect and the income effect of an increase in income on leisure time.arrow_forward
- An individual’s utility function is given by where is the amount of leisure measured in hours per week and is income earned measured in cedis per week. Determine the value of the marginal utilities, when = 138 and = 500. Hence estimate the change in utility if the individual works for an extra hour, which increases earned income by GH¢15 per week. Does the law of diminishing utility hold for this function?arrow_forwardA) Ana decides every day how many hours to work and how much beef to consume. She spends all income earned from work each day on consumption of beef. Her utility function for free time (t, 24 hours minus hours worked) and consumption (y) is: U(t, y) = 2t + y The price per unit of beef consumed is 4 and her hourly wage is 1. • Using a diagram and appropriate algebra, explain what Ana's optimal number of hours work and units of beef consumed are each day. Ana reads a book about the impact of beef consumption on climate change and realises that there is a cost to society of her beef consumption. She takes account of this impact on society in her own decisions, incorporating a disutility of -0.03y per unit of beef consumed. She still only consumes beef and spends all income earned each day on this consumption. • Explain, using a diagram and appropriate algebra, how recognition of the impact of her consumption choice on climate change impacts on Ana's daily free time and beef consumption…arrow_forwardConsider a worker whose choice is between hours of free time and consumption. His company has now cut his wage rate. Which of the following statements is correct? O As a result of the substitution effect, the worker would reduce his free time. The income effect means that the worker would increase his free time. The worker may or may not reduce his free time as a result of the wage cut. The income effect will always dominate the substitution effect of the wage cut.arrow_forward
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