Question 1: Assume that Annes wage is 8 units an hour, and she has 12 hours a day to either stay at home or spend working.

a). (1.5 points) Derive her budget constraint and illustrate it on the well-labelled graph. Also, illustrate Annes indifference curve if, given that wage, she prefers to work 7 hours a day. Please show all your steps and label the graphs.

b). (1.5 points) Now, assume that Annes wage got increased to 10 units an hour, and substitution effect is greater than income effect. Derive a new budget constraint and illustrate all those changes in the graph. Please show all your steps and label the graphs.

c). (3 points) Now assume, that our Anne has inherited a nice condo and decided to start renting it out (this is to say, that she got some non-earned income). The level of this income is equivalent to 30 units of market output. Illustrate this on a graph and now assume that Anne decided to go back to working only 7 hours a day. Please explain and show all your steps and label the graphs.