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Unformatted text preview: B = tP G . If that is the case, then by simple substitutions, B = G. 3) Ralph was better off in period 0. In period 0 his income was $2*10 + $1*80 = $100. Note in period 0 he could have afforded the bundle he consumes in period 1, it would cost $2*15 + $1*65 = $95, but he didnt, so by direct revelation of preference, we know that the bundle (10, 80) is preferred to the bundle (15, 65) so in period 0 he consumed a bundle he likes better than one the he ends up consuming in period 1. 4) Note: with a wage increase for all hours, the laborer can be at either point A or point B, depending on his indifference curve map. If overtime wages are offered for hours only after the normal working day, the laborer must choose a bundle between points Eo and F. This guarantees less leisure consumed so more labor supplied. Its only the substitution effect now....
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- Fall '06