1.Alice’s utility is given by , x and y are goods and l is the amount of hours that Alice works. Alice can only spend what she earns by working at her job that pays her $10 per hour and by spending her interest income from her trust fund, m > 0.
a. Suppose the prices of x and y are $12 and $48 respectively. What is Alice’s budget constraint?
b. Assume m = $240. How much of each good does Alice buy and how many hours does she work?
c. Assume m = $1200. How much of each good does Alice buy and how much does she work?
d. Suppose again that m = $240, but now suppose she makes $20/hr. Does Alice work more or less? Does this seem realistic? Suppose m = $240, but she makes $100,000/hr. Does Alice work more or less? Does this seem realistic?