Mrs. Smith has a guaranteed income of $20 per day from an inheritance. Her preferences require her always to spend two fifth (40%) of her potential income on leisure (H) and three fifth (60%) on consumption (C)

What is Mrs. Smith budget constraint in this situation?

How many hours will Mrs. Smith devote to work and to leisure in order to maximize her utility, given that her market wage is $1.25? $2.50? $5.00? $10.00?

Graph the four different budget constraints and sketch in Mrs. Smith’s utility-maximizing choices. (Hint: When graphing budget constraint, remember that when H=24 C=20 not 0).

Graph Mrs. Smith’s supply-of-labor curve.