Each person tries to balance his or her time between leisure and work.
The tradeoff is that as you work less your income
falls. Therefore each person has
indifference curves
which connect
the number of hours of leisure, , and income, . If, for
example, you are indifferent between 0 hours of leisure and an income
of $1125 a week on the one hand, and 10 hours of leisure and an
income of $750 a week on the other hand, then the points ,
, and , both lie on the same indifference
curve.
The table below gives information on three indifference curves,
I, II, and III.
Weekly Income | Weekly Leisure Hours |
I | II | III | I | II | III |
1125 | 1250 | 1375 | 0 | 20 | 40 |
750 | 875 | 1000 | 10 | 30 | 50 |
500 | 625 | 750 | 20 | 40 | 60 |
375 | 500 | 625 | 30 | 50 | 70 |
250 | 375 | 500 | 50 | 70 | 90 |
(a)
On a sheet of paper, or using a calculator or other technology,
graph the three indifference curves. (You will need these to answer
part (d) of this problem.)
(b)
You have 95 hours a week available for work and
leisure combined, and you earn $21.45/hour.
Write an equation in terms of and which represents
this constraint.
constraint:
(c)
Graph this constraint with your graph of the indifference
curves.
(d)
Estimate from the graph what combination of leisure hours and income
you would choose under these circumstances.
leisure hours =
weekly income =
What is the corresponding number of hours per week you would work?
work hours =
You can earn partial credit on this problem.