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Alice's utility is given by , x and y are goods and l is the amount of hours that Alice works. Alice can only spend what she earns by working at her job that pays her $10 per hour and by spending her interest income from her trust fund, m > 0.

a. Suppose the prices of x and y are $12 and $48 respectively. What is Alice's budget constraint?

b. Assume m = $240. How much of each good does Alice buy and how many hours does she work?

c. Assume m = $1200. How much of each good does Alice buy and how much does she work?

d. Suppose again that m = $240, but now suppose she makes $20/hr. Does Alice work more or less? Does this seem realistic? Suppose m = $240, but she makes $100,000/hr. Does Alice work more or less? Does this seem realistic?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M947119

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