Suppose that you have 60 hours per week of leisure time and that you can earn $25 per hour in the labor market. Part of the reason you do not have more time to work is that you need to do a variety of household chores: cleaning, shopping for food, cooking, laundry, running errands, etc. Suppose that those chores take 20 hours of your time per week.
Suddenly you see an advertisement in the newspaper: “Personal Robot can do the following: clean, shop, cook, do laundry, run errands, etc. Can be rented by the week.”
A: Suppose you learn that the weekly rental fee is $250 and that the robot could indeed do all the things that you currently spend 20 hours per week doing (outside the 60 hours of leisure you could be taking).
(a) Illustrate your new weekly budget constraint assuming you decide to rent the robot. Be sure to incorporate the fact that you have to pay $250 each week for the robot but assume that there is no consumption value in having a robot other than the time you are saved doing chores you would otherwise have to be doing. Are you better off with or without the robot?
(b) As it turns out, everyone else wants this robot as well—and so the rental price has increased to $500 per week. How does this change your answer?
B: Incorporate the impact of the robot into the budget equation and illustrate how it leads to the graph you derived in 3.6A(a).