On weekends Andrew likes to download accounting videos from the CICA server. He has symmetric Cobb Douglas
Question:
On weekends Andrew likes to download accounting videos from the CICA server. He has symmetric Cobb Douglas preferences, non-labour income of $120 a day and earns a wage of $20 an hour. Accounting videos (X) have a money price of $20 and take him 15 minutes to download and watch. Andrew also purchases Good Y which has a money price of $40 and a time price of 30 minutes.
a. Provide a fully labelled Indifference Curve diagram that applies Becker’s model of Time and Money Prices to determine Andrew’s optimal consumption as bundle “a”. Put Good X on the horizontal axis.
b. The CICA increased their price for accounting videos to $60. To make matters worse their server has been running slow. Andrew now spends 2 hours to download and watch an accounting video. Because he is a very good customer the CICA has offered to compensate him. He will be given a few free downloads every day. Show on your diagram from Part a. the minimum number of free videos they would have to offer him as Bundle “b”. His Hicksian CV = __________.
Expert Answer:
Part a Optimal Consumption as Bundle a Andrews full income is 120 20hour 24 hours 600 per day We can represent his budget constraint as 20X 40Y 600 An... View the full answer
