Answer to Question #205763 in Microeconomics for Yavagal

Question

What information is embodied in an indifference curve and the budget line in the

work–leisure model? Draw an indifference map and budget line and locate worker’s

optimal position.

Answer 1

Solution

An indifference curve shows the relationship of real income and leisure time that will yield particular level of utility giving similar utility or satisfaction to an individuals in the work- leisure model.

Budget Constraint line shows all the possible combinations of income and leisure that a worker can come up with a given wage rate.

The optimal position point is where the indifference curve will be tanget on the budget line. In the above graph it will be at point u1 because I2 is tangent on the budget line HW.