The figure given below shows the income-leisure trade off of an individual. Figure 15.6 AB and AC: Income constraints of the individual
I₁, I₂, and I₃ curves show the income leisure choices of the individual.
In Figure 15.6, if the income constraint of the individual is given by the line AC, he maximizes his utility by choosing _____ hours of leisure and _____ units of income.

Question

The figure given below shows the income-leisure trade off of an individual. Figure 15.6

AB and AC: Income constraints of the individual
I₁, I₂, and I₃ curves show the income leisure choices of the individual.
In Figure 15.6, if the income constraint of the individual is given by the line AC, he maximizes his utility by choosing _____ hours of leisure and _____ units of income.

Quizplus · Accepted Answer

The individual will choose the point where the highest attainable indifference curve is tangent to the income constraint. In this case, it is at point E on curve I₂, where L₂=3 and Y₃=4. Therefore, the individual will choose 3 hours of leisure and 4 units of income.

The Figure Given Below Shows the Income-Leisure Trade Off of an Individual