- 27 Ricardo Has 50 Day In Nonlabor Income Pays 1 For Each Unit Of X Market Goods And Receives 2 For Each Hour Wor 1 (54.89 KiB) Viewed 34 times
27. Ricardo has $50/day in nonlabor income, pays $1 for each unit of X (market goods), and receives $2 for each hour worked in the labor market. His preferences for X and L (leisure) are such that his marginal rate of substitution (L for X) equals 2 when he consumes 24 hours of L and 50 units of X each day. From this information, we know that: a) Ricardo's reservation wage is $2. b) Ricardo is failing to maximize utility if he consumes 24 hours of L each day. c) The 50th unit of X and the 24th hour of L both give Ricardo the same marginal utility. d) Ricardo will choose to work in the labor market if his wage exceeds $1/hour. e) Ricardo has a backward-bending labor supply curve.