Question

Answer the following questions and be sure to explain your answers. 1.) Consider a labor-leisure tradeoff...

Answer the following questions and be sure to explain your answers.

1.) Consider a labor-leisure tradeoff problem where 24 hours must be divided between labor and leisure. You can assume that for simplicity and assume that labor is paid a wage . When plotting the time constraint and indifference curves, be sure to put leisure on the x-axis and consumption on the y-axis.

a.) Draw the time constraint and give its equation in slope-intercept form.

b.) Suppose now that the consumer gets overtime pay, which is time and a half, for any hours worked beyond 8 hours per day (i.e., the worker gets 1.5 times the wage for any hours worked beyond 8). Draw the new time constraint and give its equation in slope-intercept form.

c.) Is the consumer better off or worse off after the new overtime policy? Could the consumer be unaffected? Does the consumer work more or less after the policy change? Explain using graphs of the budget constraints with and without the overtime pay policy, and the indifference curves passing through the optimal consumption bundles.

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