Exam 9:Buying and Selling-Part A

Holly consumes x and y.The price of x is 4 and the price of y is 4.Holly's only source of income is her endowment of 6 units of x and 6 units of y which she can buy or sell at the going prices.She plans to consume 7 units of x and 5 units of y.If the prices change to $7 for x and $7 for y,

Lucetta changes light bulbs.She is paid $10 an hour.She can work as many hours as she wishes.Lucetta works only 6 hours a day.But she says she loves her job and is happier working at this job than she would be if she made the same income without working at all.Though this may sound strange,Lucetta is perfectly rational.Draw a graph showing leisure on the horizontal axis and income on the vertical axis.Draw a budget line and some indifference curves for Lucetta that are consistent with Lucetta's words and actions.Explain in words what happens.

Aristotle earns 5 dollars per hour.He has 110 hours per week available for either labor or leisure.In the old days he paid no taxes and received nothing from the government.Now he gets a $200 payment per week from the government but he must pay half of his labor income in taxes.(His before-tax wages are the same as they were before,and he has no other source of income than wages and payments from the government. )He notices that with the government payment and his taxes,he can exactly afford the combination of leisure and consumption goods that he used to choose.How many hours per week did he work in the old days?

Dudley has a utility function U(C,R= C - (12 -R)²,where R is leisure and C is consumption per day.He has 16 hours per day to divide between work and leisure.If Dudley has a nonlabor income of $20 per day and is paid a wage of $0 per hour,how many hours of leisure will he choose per day?

Suppose a consumer is initially endowed with a positive amount of two goods,sells some of one to get more of the other,and has no other sources of income.If the price of one good falls,his new budget line is everywhere above his old budget line.

Peter has an endowment of 3 units of good x and 5 units of good y.He can buy and sell x at a price of $100 and y at a price of $200.He receives an income of $700 as alimony from a former spouse. a.Draw Peter's budget line for x and y.Show his initial endowment of x and y on your diagram. b.Calculate the amount of x that he could afford if he bought only x and the amount of y he could afford if he bought only y. c.Write an equation for Peter's budget.

Mr.and Mrs.Brauer owned their own home.There was a real estate boom in their town and the price of houses doubled.Their income and other prices stayed constant.The Brauers complained that "we are being driven from our home;we can't afford to live here any more." a.Draw a diagram that illustrates what happened to the Brauers' budget constraint. b.Could they have been made worse off by the change? Could they have been made better off? Explain why.

Leo thinks leisure and consuming goods are perfect complements.Goods cost $1 per unit.Leo wants to consume 5 units of goods per hour of leisure.Leo can work as much as he wants to at the wage rate of $15 an hour.He has no other source of income. a.How many hours a day will Leo choose to spend at leisure? b.Draw a diagram showing Leo's budget and his choice of goods and leisure. c.Will Leo work more or less if his wage rate increases?

George Goodhands is a life insurance agent.He can work 40 hours a week for a large national insurance company and receive a fixed salary of S dollars per week,or he can work independently,for as many or as few hours per week as he likes and earn w dollars per hour.(He cannot take both jobs. )Which of the following responses to an increase in the salary paid by the insurance company would be inconsistent with the weak axiom of revealed preference?

Dudley's utility function for goods and leisure is U(G,L)= G - (20 - L)(20 - L),where G is consumption of goods and L is the number of hours of leisure per day.Goods cost $1 per unit. a.If Dudley had an income from nonlabor sources of $25 per day and could work as much as he chose to but would get zero wages,how much would he work? b.Sketch Dudley's indifference curves on a graph with leisure on the horizontal axis and income on the vertical axis.If Dudley's nonlabor income were $25 a day and he could work as much as he wished for $10 an hour,how many hours a day would he choose to work?

If a person is a net seller of some good and the price of that good decreases,she might possibly become a net buyer.

Bill receives half of his income in wages and half of his income in dividends.Bill would be indifferent between a 50% increase in his wage rate and a 50% increase in his dividend income.

Marilyn is a journalist.She is considering two possible jobs.One job is as an editor for a magazine.The other job is writing freelance articles and selling them to whoever will buy them.If she works for the magazine,she must spend 10 hours a day at work and commuting.She will be paid $130 a day net of commuting costs and taxes if she takes this job.If she writes freelance articles,she can work at home and as many hours a day as she pleases.She estimates that she would earn $10 an hour after taxes if she does this.Her utility function is U = (R³)C,where R is the number of hours a day she spends not working or commuting and C is her earnings. a.If Marilyn chooses to freelance,how many hours will she work? b.Calculate her utility in each job and identify which job she will choose.

If leisure is an inferior good,then an increase in the wage rate will make a person work more.

If a person has no nonlabor income,a decrease in wages causes the budget line between leisure and other goods to shift downward in a parallel fashion.

Mario consumes eggplants and tomatoes in the ratio of 1 bushel of eggplants per 1 bushel of tomatoes.His garden yields 30 bushels of eggplants and 10 bushels of tomatoes.He initially faced prices of $10 per bushel for each vegetable,but the price of eggplants rose to $30 per bushel,while the price of tomatoes stayed unchanged.After the price change,he would

Henri is paid $9 an hour for the first 40 hours per week that he works.He can also work as many hours overtime as he wishes to.He is paid $15 an hour for every hour that he works beyond 40 hours a week.Leisure is a normal good for Henri and he is currently working some overtime.If his hourly wage for the first 40 hours per week that he works rises to $11 and his wages for overtime remain at $15 per hour,he will choose to work

Ollie South has an endowment of 10 guns and 10 pounds of butter.He can buy or sell butter at $1 a pound.But the world market for guns is more complicated: he can buy guns for $5 each,but he can sell guns for only $2.If we graph his budget line with guns on the horizontal axis and butter on the vertical axis,then Ollie's budget line is a straight line

If Abishag owns 18 quinces and 5 kumquats and if the price of kumquats is 6 times the price of quinces,how many kumquats can she afford if she buys as many kumquats as she can?

Mr.Cog has 18 hours per day to divide between labor and leisure.His utility function is U(C,R)= CR,where C is dollars per year spent on consumption and R is hours of leisure.If he has 19 dollars of nonlabor income per day and gets a wage rate of 15 dollars per hour when he works,his budget equation,expressing combinations of consumption and leisure that he can afford to have,can be written as