How will bobs optimal consumption choice change

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Reference no: EM13922139

Suppose there are only two goods that Bob cares about-(1) material welfare and (2) leisure time that he "buys" from the outside world at $40 per unit and $20 per hour, respectively. He currently lives and works in Atlanta, has a budget totaling $1,000 per week for these two goods, and consumes 11 units of material welfare and 28 hours of leisure time.

a. Show Bob's consumption choice on a graph using the actual budget line and a hypothetical indifference curve. (Label the axes and show the x and y intercepts.)

b. How will Bob's optimal consumption choice change if the government imposes a $10/unit tax on the material welfare good?

c. Suppose Bob has a chance to move (at zero cost) to Saint Louis where material welfare and leisure time cost $50 and $10, respectively. His budget remains the same as before and the government has decided not to impose a tax on the material good. Would Bob move to Saint Louis? Why or why not? Explain.

Reference no: EM13922139

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