Question

Suppose that an individual earns only labour-income. Initially, she takes T1 hours (for which she is not paid) to commute to and from work by public transportation, and incurs a travel cost of C1. Using budget constraints and indifference curves, illustrate with diagrams and explain:

a) this individual’s optimal hours of work;

b) how this individual’s optimal hours of work would change (if any) if public transportation services deteriorate (i.e. commuting takes more hours, T2, and at a higher cost, C2).

c) In the case of part (b), what would happen to this individual’s labour supply curve.

Answer 1