Two parts:
Part A
Robin is a consumer deciding between current and future consumption. He receives income of 30,000 in the current year [t0] but expects to receive no income next year [t1]. The interest rate is 5% per year. Draw and label in full a diagram showing Robins intertemporal budget constraint. (5 marks)
Reproduce the diagram that you drew for Question 1 and add to it an indifference map for Robin comprising at least three indifference curves. When drawing the diagram, assume that Robin has patient preferences and explain what this means. Show the intertemporal pattern of consumption that maximises utility and explain why this is unique. (10 marks)
In this question we assume that Robin receives income in the current time period only, and is making a decision about how to divide time between paid and unpaid work. To be able to enjoy more income, he has to do paid work for more hours, sacrificing the amount of unpaid time he can have. On the other hand, to enjoy more unpaid time, he must work fewer hours for pay and so earn less. Robins hourly wage is 15, he works for a maximum of 10 hours a day, and he always receives a 20 daily income from state benefits.
Draw a new diagram that shows Robins budget constraint. (8 marks)
a.Robins hourly wage decreases to 10 an hour. Reproduce your diagram from Question 3; then explain and amend your diagram to show how this decreased wage affects his budget constraint, and the allocation of his time between paid and unpaid work. (7 marks)
b.Use the diagram in 4(a) to derive Robins upwards sloping supply curve.
Describe the circumstances under which Robin may face a downward sloping labour supply curve. (10 marks)
Part B
Drawing on economic analysis from the module as well as at least one of the extracts below, write an essay to answer the following question:
To what extent would increased automation and government policies on leave, childcare and flexible working increase womens share of a households resources? (60 marks)
These are the two links:
https://theconversation.com/is-it-becoming-easier-to-be-a-working-mother-46492
https://theconversation.com/automation-has-the-potential-to-improve-gender-equality-at-work-96807
This is more of the guidelines to help structure the answers:
Part A draws mainly on Chapter 2, Section 2; Chapter 3, Sections 2 and 3.1; and the online activities Indifference curves V: Modelling a workers labour supply decision and Indifference curves VI: Modelling intertemporal spending/saving decisions. The questions assess your understanding of some of the main components of the neoclassical theory of consumption and of labour supply. The online tutorials on indifference curves will also provide useful guidance.
Question 1 requires a careful explanation of the budget constraint and an explanation of the diagram, which should use the numerical information in the question.
For Question 2, make sure that you show the point of utility maximisation in the diagram and explain why it is a unique point. Also explain how your diagram shows patient preferences.
For Question 3, draw the budget constraint using the numerical information about Robins daily income as well as the maximum daily hours that he is prepared to work. Question 3 is different to Questions 1 and 2 as you are analysing Robins decision in one time period. In this question Robin is choosing between time spent on paid and on unpaid work.
For Question 4(a), you need to show both the budget constraint in Question 3 and the new budget constraint following the reduction in Robins hourly wage, along with his new equilibrium point.
For Question 4(b), you first have to use the diagram in Question 4(a) to derive an upwards sloping supply curve, so the first part of your answer to Question 4(b) will have two diagrams. The second part of Question 4(b) is a brief explanation and discussion as to why, in some circumstances, the supply curve may be downward sloping.
Part B
Part B, the essay question, asks you to draw on the different theories of household decision making outlined in Chapter 4 and to examine how they help explain the evidence in the article provided. Materials in Chapter 3 are also relevant to the question.
Make sure you develop a clear and structured argument in your answer. You will gain more marks for covering a selected area of material in more depth than a superficial treatment of a wide range of material. So, for example you might wish to focus on two or three models of household decision making in your essay. You can always show a breadth of understanding by mentioning other models when discussing the evidence.
The key to writing a good essay is to be clear in your explanation of the terms you use, the theories you cover and how they relate to the evidence you select from the article. Remember to focus on using economic theory to help you establish the points you wish to make.
