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Two individuals, Sam and Barb, derive utility from the hours of leisure (L) they consume and from the amount of goods (G) they consume.
Two individuals, Sam and Barb, derive utility from the hours of leisure (L) they consume and from the amount of goods (G) they consume. In order to maximize utility, they need to allocate the 24 hours in the day between leisure hours and work hours. The price of a good is equal to $1.00 and the price of leisure is equal to the hourly wage. We observe the following information about the choices that the two individuals make: Sam Barb Sam Barb Price of Price L L G of L (hours) (hours) G ($) G ($) 1 7 13 10 77 98 1 10 12 12 120 120 1 13 11 14 169 130 Graphically, illustrate Sam's leisure demand curve and Barb's leisure demand curve. 1.) Using the line drawing tool, draw Sam's leisure demand curve. Label this line 'Ds' 2.) Using the line drawing tool, draw Barb's leisure demand curve. Label this line 'DB'. Carefully follow the instructions above, and only draw the required objects. Given that they both maximize utility, how can you explain the difference in their leisure demand curves? The leisure demand curves for Sam and Barb are different because A. Sam's income effect is larger than Barb's income effect, but Sam's substitution effect is smaller than Barb's substitution effect. B. Leisure is a normal good for Sam but an inferior good for Barb. O C. Sam's income and substitution effects are negative while Barb's income and substitution effects are positive. D. Sam's substitution effect is larger than his income effect, but Barb's income effect is larger than her substitution effect. O E. Sam has only an income effect, while Barb has only a substitution effect.
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