Econ151a_ps2_w2010

Econ151a_ps2_w2010 - Problem Set 2 Economics 151a, Winter...

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Problem Set 2 Economics 151a, Winter 2010 Due January 19, 12:10 pm 1. a. Sketch an informal, graphical proof of the following claim: “An individual’s reserva tion wage will increase as his non- labor income increases.” b. In 2 to 3 sentences, provide some intuition for why this should be true. Include the definition of a reservation wage in your answer. 2. Suppose that individuals can spend a total of 64 hours (T, total time) per week on work (H) and leisure (L). Consider an individual facing a wage of $12/hour and non-labor income of $100 per week. a. Draw this individual’s budget constraint for allocating income between leisure and a composite consumption good. Label all intercepts and find the slope and endowment point of the budget constraint. b. Suppose an individual has preferences such that her marginal utility of leisure is equal to C (the quantity of consumption), and her marginal utility of consumption is equal to L (the quantity of leisure). Does this individual’
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This note was uploaded on 02/14/2011 for the course ECON 151A taught by Professor Miller during the Spring '06 term at UC Davis.

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Econ151a_ps2_w2010 - Problem Set 2 Economics 151a, Winter...

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