Juanita Derives Utility From Both Leisure And Leisure Case Study

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Register to read the introduction… (see diagram) Juanita’s partner has just won the lottery, and Juanita’s share of this is $20/day. In the notation we have used in class, this means that for Juanita non-market income, V, has gone from a value of zero to a value of $20. e) (10 marks) In a new diagram, show how this will affect her time allocation. Explain. Ans: This transfer from her partner will cause the boundary of Juanita’s budget set to shift up vertically – see diagram. It will not change the slope of the budget line (or ppf) at any horizontal coordinate. In my diagram in (d), Juanita spent some time in the market as well as in home production and leisure. The transfer will generate a pure income effect on her chosen bundle. If leisure and food are both normal goods – as we usually assume – then her Due: November 26, 2012 Total marks: …show more content…
Her market time will decrease, and the amount of time she spends in home production will not change. If her bundle in (d) involved no market work, the additional leisure will come at the expense of time in home production.

2. (25 marks) Stevenson and Wolfers have argued that there has been “…a shift from the family as a forum for shared production, to shared consumption”. One interpretation of the first part of this statement is that the gains from marriage arising from comparative advantage and specialization in production have diminished.

Consider, then the comparative advantage model of marriage. The table below gives the individual productivities in the home and the market for Billy and Sue.
Market production: $/hour Billy Sue 5 2 Home production: $/hour 3 6

Each individual has 15 hours per day to divide between the market and home.
a) (2 marks) Which individual has a comparative advantage in home production? In market production? Explain briefly. Ans: Billy has a comparative advantage in market production, and Sue in home production. This is shown by the comparing the opportunity cost of an additional dollar of home production for the individuals. Billy gives up 5/3 units of market production for each unit of home production, while Sue gives up only

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