ProblemSet2 - University of Washington ECON 200 B Problem...

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University of Washington ECON 200 B Problem Set #2 Due Friday April 23rd 1. Mankiw, Chapter 21 Problem #11 (all parts) Consider a couple’s decision about how many children to have. Assume that over a lifetime a couple has 200,000 hours of time to either work or raise children. The wage is $10 per hour. Raising a child takes about 20,000 hours of time. a. Draw the budget constraint showing the trade-off between lifetime consumption and number of children. (Ignore the fact that children only come in whole numbers!) Show indifference curves and an optimum choice. b. Suppose the wage increases to $12 per hour. Show how the budget constraint shifts. Using income and substitution effects, discuss the impact of the change on number of children and lifetime consumption. c. We observe that, as societies get richer and wages rise, people typically have fewer children. Is this fact consistent with this model? Explain. 2. Mankiw, Chapter 7, Problem #9 Suppose technological advance reduces the cost of making computers. a. Draw a supply-and-demand diagram to show what happens to price, quantity, and producer surplus in the market for computers. b.
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This note was uploaded on 11/19/2010 for the course ECON ECON200 taught by Professor Ericka during the Spring '10 term at University of Washington.

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ProblemSet2 - University of Washington ECON 200 B Problem...

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