Tutorial assignment 2
Due at the beginning of your week 3 tutorial
1.
Consumers in Queensland pay twice as much for avocados as they do for peaches.
However, avocados and peaches are equally priced in SA. If consumers in both states
maximize utility (and have identical preferences), will the marginal rates of substitution
of peaches for avocados be the same for consumers in both states? If not, which will be
higher? (
Hint:
Draw graphs.)
2. Suppose that Mimi can choose how many hours to work at a wage rate
w
, and she
chooses to work seven hours per day. Suppose that her boss offers her timeandahalf
wage 1.5
w
for every hour she works beyond a minimum of eight hours per day. Plot
hours of leisure (24 minus working hours) on the horizontal axis and money on the
vertical axis.
a.
Show how her budget constraint changes because of the proposal.
b.
Under what circumstances will Mimi now choose to work more than eight
hours per day if she is maximizing her utility? (Give an example of Mimi’s
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 Three '09
 NONE
 Utility, horizontal line, timeandahalf wage

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