Problem Set 2 JASON

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

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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)

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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
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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).

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

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