Show the new optimal allocation between income and leisure

Assignment Help Macroeconomics

Reference no: EM132154301

Question: Using the income/leisure model, graph and explain the following siutations: (be sure to properly label your graph)

i) With the use of a graph, explain why the marginal rate of substitution diminishes as one moves down an indifference curve

ii) Suppose income increases and one moves to a higher indifference curve. Show the new optimization point where leisure is a normal good. In your answer, explain why leisure is a normal good. Is this a pure effect? Explain.

iii) Suppose the wage rate of the employee increases and the employee desires more leisure. On your graph, show the new optimal allocation between income and leisure.

iv) On your graph, c;ear;y illustrate the income and substitution effect of this wage increase. Explain what the means.

Reference no: EM132154301

Questions Cloud

Event of physical catastrophe such as power failure : The management of First American Bank was concerned about the potential loss that might occur in the event of a physical catastrophe such as a power failure

Represents demand for widgets : 1. The following represents demand for widgets (a fictional product):

Discuss the likely impact of the given events : Using the AS/AD model, discuss the likely impact of the following events with proper diagram(s): An increase in petrol price (starting from the full-employment)

Company real market expectations for successful partnership : What is the primary factor in establishing a company's real market expectations for a successful partnership?

Show the new optimal allocation between income and leisure : Suppose the wage rate of the employee increases and the employee desires more leisure. On your graph, show the new optimal allocation between income.

Analysis of decision making processes within organization : An analysis of the decision making processes within the organization. An analysis of the use of both power and politics in the organization.

What type of economic policy does the theory call for : Using a simple example, explain the Comparative Advantage Theory and how Countries can benefit from international trade. What type of economic policy does.

Identified risks be used in real project management : Currently Identified Risks be used in the real project management? Describe the process that has been/will be used to manage risk

Why a minimum wage would cause more unemployment : Using a supply and demand graph for labor, show why a minimum wage would cause more unemployment during a recession than during economic expansion.

User Account

All Pages