Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 26

Smith has a guaranteed income of $10 per day from an inheritance. Her preferences require her always to spend half her potential income on leisure (H) and consumption (C).
a. What is Mrs. Smith's budget constraint in this situation?
b. How many hours will Mrs. Smith devote to work and to leisure in order to maximize her utility, given that her market wage is $1.25? $2.50? $5.00? $10.00?
c. Graph the four different budget constraints and sketch in Mrs. Smith's utility-maximizing choices. (Hint: When graphing budget constraints, remember that when H = 24, C = 10, not 0.)d. Graph Mrs. Smith's supply-of-labor curve.
e. How will Mrs. Smith's supply-of-labor curve (calculated in part d) shift if her inheritance increases to $20 per day? Graph both supply curves to illustrate this shift.