Answer Happy

Question 2. Suppose that a representative consumer is endowed with h = 10 units of time, and his preferences are represented by U(C, 1) = (21 + 49C His non-wage income and wage are given in the following three different cases. Case 3 Case 1 8 -T w Case 2 -8 4 8 4 a) Draw budget constraints for all cases above. b) Write down his utility maximization problem. c) Find his optimal consumption bundle for each case and mark them on the graph drawn in a). d) Compute the maximum utility level he achieves for all cases (Hint: First, find the MRS, as a function of L and C and then plug the values into the optimality condition.) e) Calculate substitution effect. f) Calculate income effect. 8) Calculate the overall effect.