There is no solution for Chap 1
Ch 2 - 12 - All Chapters Solutions included
CHAPTER 2
2-1. It is costly to commute to work, and the cost typically involves both time and money.
(a) Suppose that a worker’s commute involves traveling a long distance on a highway that
is about to start charging toll fees of $Y. There is no other way for the person to get to their
job. What will happen to hours of work as a result of this increase in commuting costs?
In the absence of the toll fees, the worker would choose point P and work T - L0 hours. If it costs
$Y to get to work, the budget line shifts down by $Y, and the worker would then choose point R
and would work T - L1 hours. The introduction of toll fees, therefore, acts like an income effect,
reducing the demand for leisure and lengthening the work week.
(b) Suppose a worker’s current job is located very near to their house, so that the time it
takes to commute to work is essentially zero. The firm is considering a move to another town,
and it will then take the worker 10 hr per week to get to and from work, regardless of how
many hours the worker actually decides to work. What will happen to the worker’s hours of
work (defined as hours actually spent on the job) as a result of this increase in commuting
costs?
1
, To determine what happens to hours of work, it is important to distinguish between hours actually
spent at work and hours spent commuting. In the absence of time commuting costs, the worker
would choose point P and work T - L0 hours. If it takes 10 hr to commute, the worker would then
choose point R and would spend a total of T - L1 hours either commuting or working. Note,
however, that the number of hours actually spent working declines from T - L0 to (T - 10) - L1.
Even though the commuting costs induce an income effect, reducing the total number of hours
spent consuming leisure, hours spent at work actually decline because so much of the leisure time
released by the income effect is spent commuting.
(c) Why do the different types of commuting costs have different effects on hours of work?
A toll increases hours of work, while an increase in “time” commuting costs decreases hours of
work. The one common result in both parts of the problem is that hours of leisure declines. In the
presence of time commuting costs, however, the reduction in leisure time is “consumed away” by
the increase in the amount of time that it takes to get to work.
2-2. Charlie and Larry both face the same budget line for consumption and leisure. At every
possible consumption–leisure bundle on the budget line, Charlie always requires marginally
more leisure than does Larry in order to be equally happy when asked to forego a dollar of
consumption. Using a standard budget line, graph several indifference curves and the
optimal consumption–leisure bundle for both people. Which person optimally chooses more
consumption? Which feature of indifference curves guarantees this result?
2
Ch 2 - 12 - All Chapters Solutions included
CHAPTER 2
2-1. It is costly to commute to work, and the cost typically involves both time and money.
(a) Suppose that a worker’s commute involves traveling a long distance on a highway that
is about to start charging toll fees of $Y. There is no other way for the person to get to their
job. What will happen to hours of work as a result of this increase in commuting costs?
In the absence of the toll fees, the worker would choose point P and work T - L0 hours. If it costs
$Y to get to work, the budget line shifts down by $Y, and the worker would then choose point R
and would work T - L1 hours. The introduction of toll fees, therefore, acts like an income effect,
reducing the demand for leisure and lengthening the work week.
(b) Suppose a worker’s current job is located very near to their house, so that the time it
takes to commute to work is essentially zero. The firm is considering a move to another town,
and it will then take the worker 10 hr per week to get to and from work, regardless of how
many hours the worker actually decides to work. What will happen to the worker’s hours of
work (defined as hours actually spent on the job) as a result of this increase in commuting
costs?
1
, To determine what happens to hours of work, it is important to distinguish between hours actually
spent at work and hours spent commuting. In the absence of time commuting costs, the worker
would choose point P and work T - L0 hours. If it takes 10 hr to commute, the worker would then
choose point R and would spend a total of T - L1 hours either commuting or working. Note,
however, that the number of hours actually spent working declines from T - L0 to (T - 10) - L1.
Even though the commuting costs induce an income effect, reducing the total number of hours
spent consuming leisure, hours spent at work actually decline because so much of the leisure time
released by the income effect is spent commuting.
(c) Why do the different types of commuting costs have different effects on hours of work?
A toll increases hours of work, while an increase in “time” commuting costs decreases hours of
work. The one common result in both parts of the problem is that hours of leisure declines. In the
presence of time commuting costs, however, the reduction in leisure time is “consumed away” by
the increase in the amount of time that it takes to get to work.
2-2. Charlie and Larry both face the same budget line for consumption and leisure. At every
possible consumption–leisure bundle on the budget line, Charlie always requires marginally
more leisure than does Larry in order to be equally happy when asked to forego a dollar of
consumption. Using a standard budget line, graph several indifference curves and the
optimal consumption–leisure bundle for both people. Which person optimally chooses more
consumption? Which feature of indifference curves guarantees this result?
2
