What is the equation of her budget constraint

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Question 1 Ann is trying to work out how many hours she should work. For every hour she works she gets £10, she also has some non-labour income of £511 She uses her income to purchase a 'eonsumption good' which costs £1 per unit. She has 24 hours in total to allocate between leisure and lab-our.

a. What is the equation of her budget constraint? Draw her budget constraint in a consumption-leisure diagram. What does this represent? ["3]

b. On a new consumption-leisure diagram add her (well-behaved) indifference curves. Explain what they represent and identify the optimal choice. What is true about her marginal rate of substitution (MRS) at the optimal choice? Explain.

c. Suppose that her hourly.r wage rate increases to £15., using a diagram and income- substitution effects car'eiiull'jfr explain how this changes the number of hours that she works.

Reference no: EM133080435

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