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Econ 150a HW 1

# Econ 150a HW 1 - Willy Lin Economy 150A HW 1 1a Mikes...

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Willy Lin Economy 150A HW 1 1a. Mike’s utility maximizing bundle would be U=(159.96,6.67) with Mike working 13.33 hours. b. With a newly introduced non-labor income of \$60, Mike’s utility maximizing bundle changes to (140.04,8.33) with hours worked decreasing from 13.33 hours to 11.67 and leisure increasing from 6.67 hours to 8.33 hours. c. In part a, Mike works 13.33 hours, thus his consumption is \$159.96. If he is to be indifferent, then his non-labor income wage must be equal to or larger than \$159.96. So therefore, the non-labor income wage needed for Mike to remain indifferent is \$159.96. 2.a. Since Shane is not eligible for welfare, he has a non-income labor of \$0, therefore his utility maximizing bundle would be working 6 hours and resting for 12 hours. b. In part a, without the option of welfare, Shane works 6 hours and rests for 12 hours, therefore his utility is U(54,12)=88.08. With the option of welfare, Shane’s bundle is U(80,18)=160.92. Since his utility on welfare is larger than if he worked, Shane would choose to go on welfare.

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