Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 21, Problem 11PA
Subpart (a):
To determine
Trade-off and it relevance.
Subpart (b):
To determine
Trade-off and it relevance.
Subpart (c):
To determine
Trade-off and it relevance.
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Students have asked these similar questions
The figure shows three indifference curves and a budget constraint for a consumer named Hannah. When young, Hannah works and earns
Consumption
when Old
50,000
income. When old, she is retired and earns no income.
25,000
D
20,000
40,000
Consumption
when Young
At two of the four labeled points, Hannah is equally happy. Identify those two points.
Of the four labeled points, which is (are) affordable to Hannah?
Hannah's optimum is at point
How much income does Hannah earn when she is young?
What is the value of the interest rate that Hannah earns on her saving?
If Hannah chose to spend $30,000 on consumption when young, then how much could she spend on consumption when old?
Hannah could afford to be at point A if the interest rate were to
Draw YOUR indifference curve for the consumption of two goods (you pick the goods – be creative!) Make sure to include labels.
Why did you choose these two goods? Why do you view these as being a tradeoff?
Carefully explain why the indifference curve has the shape you created. (Hint: Discuss the slope. What it means and how it changes)
Determine a budget that will be allocated towards your consumption of these two goods. Given the budget, prices for the goods, and your preferences, how will you find the utility-maximizing combination? Give an intuitive answer as well as a graphical answer (make sure to label the graph accordingly).
Suppose your only source of income is work and that you are paid $20 per hour. This determines a budget constraint. You can buy free time at the expense of your income by working less. Likewise, you can get more income at the expense of your free time by working more. Suppose that you can choose how many hours you work.
How do you decide exactly on which point of your budget constraint you will choose? Explain this by referring to your indifference curves.
Chapter 21 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
Ch. 21.1 - Prob. 1QQCh. 21.2 - Prob. 2QQCh. 21.3 - Prob. 3QQCh. 21.4 - Prob. 4QQCh. 21 - Prob. 1QRCh. 21 - Prob. 2QRCh. 21 - Prob. 3QRCh. 21 - Prob. 4QRCh. 21 - Prob. 5QRCh. 21 - Prob. 6QR
Ch. 21 - Prob. 7QRCh. 21 - Prob. 1QCMCCh. 21 - Prob. 2QCMCCh. 21 - Prob. 3QCMCCh. 21 - Prob. 4QCMCCh. 21 - Prob. 5QCMCCh. 21 - Prob. 6QCMCCh. 21 - Prob. 1PACh. 21 - Prob. 2PACh. 21 - Prob. 3PACh. 21 - Prob. 4PACh. 21 - Prob. 5PACh. 21 - Prob. 6PACh. 21 - Prob. 7PACh. 21 - Prob. 8PACh. 21 - Prob. 9PACh. 21 - Prob. 10PACh. 21 - Prob. 11PACh. 21 - Prob. 12PACh. 21 - Prob. 13PA
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Similar questions
- Consider the optimal choice of labor and leisure discussed in class and the text. Suppose a consumer works the first 8 hours of the day at a wage rate of $10 per hour, but receives an overtime wage rate of $20 for additional time worked. a. On an optimal choice diagram, draw the budget constraint. (Hint: it is not a straight line.) b. Draw a set of indifference curves that would make it optimal for him to work 4 hours of overtime each day. Pls solve both for upvotearrow_forwardYou like candy and cake. After using your entire $30 budget at the sugar store, you find that the marginal utility from the last candy you consumed was 60 and the last piece of cake was 30. Assuming you have maximized your utility and the price of a piece of candy is $4, calculate the price of cake? Do not enter dollar signs. Answer:arrow_forwardA college student has two options for meals: eating at the dining hall for $6 per meal, or eating a Cup O’ Soup for $1.50 per meal. Hisweekly food budget is $60. Draw the budget constraint showing the trade-off between dining hall meals and Cups O’ Soup. Assuming that he spends equal amounts on both goods, draw an indifference curve showing theoptimum choice. Label the optimum as point A.Suppose the price of a Cup O’ Soup now rises to $2. Using your diagram from part (a), show the consequences of this change in price. Assume that our student now spends only 30 percent of his income on dining hall meals. Label the new optimum as point B.arrow_forward
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