Question

Need as much details as possible. Microeconomics.

2. Vera's utility over consumption (that is, all goods and services that she buys), C, and leisure (work- free time), L, is U(CL)-CL. Her hourly wage is w=10 €. Suppose that she can work for 24 hours a day if she wants to and that the price of consumption is p . (a) How many units of consumption can Vera buy in a day if she works non-stop? What if she works 24-L hours per day? (b) Depict Vera's daily budget line and indifference curves on a graph where leisure hours are on the x-axis and units of consumption are on the y-axis. What is the slope of the budget line? How is it related to w? What is the "price" of an hour of leisure? Depict Vera's budget line if her hourly wage is 16 in the same graph (c) Calculate Vera' optimal basket of consumption and leisure if her hourly wage is w-10 . (d) Suppose that Vera's hourly wage rises to 16 . Find the substitution, income, and total effects of the price change on leisure hours (L) and on hours worked (24-L). Is leisure a normal or an inferior good for Vera?

Answer 1

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