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(Solved): 2. A student dedicates 6 hours a day to classes and study and 8 hours to rest. This leaves 10 hours ...



2. A student dedicates 6 hours a day to classes and study and 8 hours to rest. This leaves 10 hours a day for leisure that the student is thinking of partially reducing by taking a part-time job. The student considers leisure and consumption as imperfect substitutes and her preferences are given by a utility function = (), where is consumption and is the number of hours of leisure. Hourly wage is and the price of consumption is normalized to $1 a. Write and draw the budget restriction of the student calling the hours of work, taking into account that = (10 − ), and that she already has $ per day coming from her parents. Draw. b. Represent a hypothetical choice of and c. Suppose that her parents withdraw the daily subsidy of $ and that leisure is a normal good Draw the income effect on and and explain. Do we know if she is going to work more or less? d. Suppose now that the possibility of a job with an hourly wage of $3 appears. How will this change the choice of and relative to the choice at c? Do we know if she is going to work more or less? Illustrate.



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