Draw the new budget line and mark the end points

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Reference no: EM131242516

There are 24 hours in a day. Assume Elaine has to sleep, wash, eat etc. for 10 hours of each dayleaving 14 hours for either work or play. That is, only consider her 14 free hours. Elaine earns $5 an hour.

a) If she works 8 hours what is her daily income?

b) Now let the number of hours she works vary. Graph her choices between daily income (= hrs workedx wage) ON THE X AXIS and hours a day spent playing, include the endpoint values. Pick an optimum point with both work and leisure (play) and graph the indifference curve. Calculate the income and leisure levels.

c) Now the wage goes up to $20. Draw the new budget line and mark the end points.

d) Show the income and substitution effects on LEISURE. Make sure your indifference curve is correctand note the new income and leisure levels. Is leisure a normal good? Would one consume more leisureas income increased? As wage increases can leisure time increase? Explain.e. As wage increases, what can happen to the amount of time spent working? Graph what this can implyabout the labor supply curve (wage v. hours worked).

Reference no: EM131242516

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