Question 1 Beatrice works for a surveying office and consumes leis...

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Question 1
Beatrice works for a surveying office and consumes leisure and food that sells at a price of $1 per unit. Currently, she is paid $10 per hour and has 50 hours per week to allocate between work and leisure.
Assume that leisure is a normal good Beatrice.

a) Carefully graph and label Beatrice’s budget set for leisure and food. If she works 40 hours a week, how much food does she consume a week?
b) Suppose now that Beatrice’s late grandmother leaves her in her will an annuity that gives Beatrice $250 of non-labor income per week. A condition in the will for Beatrice to receive the annuity is that she has to move back to her hometown. She decides to move; she is able to get a job in another surveying office there if she wants, but it only pays $5 per hour. On the same graph you created for part a), graph Beatrice’s new budget constraint.
c) Given that Beatrice was working 40 hours a week before she moved, how do you predict that the move will affect her decision of how many hours to work? Why?

Question 2
Benedict works at a job that pays $5 per hour. He has 12 hours per day to allocate between work and leisure. Besides leisure, he consumes food that costs $1 per unit. Now he is offered a new job that pays $8 per hour; however, the employer of this job can employ Benedict at most 5 hours a day. If Benedict wants to work more than 5 hours a day, he can work 5 hours at the new job and additional hours at his old job at $5 per hour.

a) Graph and carefully label Benedict’s original budget constraint and on the same graph draw his new budget constraint after he is offered the new job.
b) If Benedict was originally working 10 hours per day, how would you predict that the new job offer would change his hours of work? Why?
c) How would your answer to part b) change if Benedict was originally working 3 hours per week?

Question 3
In order for an individual to have an upward sloping labor supply function (the number of hours she works increases as her wage increases), must leisure be an inferior good?

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Question 1:

a) As Beatrice has 50 hours per week that she can allocate between work and leisure and earns $10 per hour the maximum income she can earn is $10* 50 = $500 which is the point in the vertical axis. If she devotes all her time for leisure activity, then she earns zero income and the point on the horizontal axis is at 50 hours. Joining these two points we get the budget set for leisure and food for Beatrice as she spends her income on food at $1 per unit. (if she earns $400 income she spends...

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