Reference no: EM1326343

Important information about Indifference curves for consumption and leisure

Imagine a truck driver that has complete control over his daily work schedule. He has no alternative income (from any source). Out of biologically necessity, he must sleep eight hours a day. Other than that, he can spend the rest of his time driving. If he drives all of his available time, he can afford to consume $192 worth of goods from that day's work.

a) Draw his budget line. assuming he is paid by the hour (and not the mile), what is his hourly wage?

b) Assuming he chooses to drive 10 hours a day, how many hours of leisure and how much consumption does this imply?

c) Draw an indifference curve that is tangent to the bundle of leisure and consumption described in (b). What is the slope of the indifference curve at this point and what does this imply about the drivers willingness to trade leisure for consumption?

d) What if the government instead decided to mandate that drivers working more than eight hours a day be paid overtime pay of $2/hour, in addition to their initial pay? show what this would do to hours worked in your diagram.