Problem Set 2 JASON - Problem Set #2 1. (a) Assuming 0...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Problem Set #2 1. (a) Assuming 0 nonwage income and 160 hour work week, at about what hourly wage rate will Maguire be in equilibrium on indifference curve A? Find the Slope of Curve A: (2700-0)= 2700 (160-0)= 160 2700/160= $16.88 (b) Assuming 0 nonwage income and 160 hour work week, at about what hourly wage rate will Maguire be in equilibrium on indifference curve b? Find the Slope of Curve B: (1500-0)= 2700 (160-0)= 160 1500/160= $9.38 (c) Yes, leisure is a normal good for Maguire. When the demand for a good rises with wealth, economists say it is a normal good. In this case, as income increases, leisure also increases making it a normal good. (d)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Income Leisure Constraint Diagram 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 0 2,000 4,000 6,000 8,000 10,000 Leisure Hours (e) In regard to the income effect, as income increases from (b) to (a), Maguire becomes wealthier and he can afford more leisure time. As a result, leisure rises under the income effect. In regard to the substitution effect, as income increases from (b) to (a), the cost of leisure goes up
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/27/2008 for the course ILRLE 2400 taught by Professor Smithr during the Fall '07 term at Cornell University (Engineering School).

Page1 / 3

Problem Set 2 JASON - Problem Set #2 1. (a) Assuming 0...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online