Question

Garfield enjoys pizzas and hanging out (leisure). He sleeps 8 hours per day. Of the remaining 16 hours, for each hour he chooses to work he gets paid 2 pizzas. Garfield must pay 6 pizzas in taxes but receives dividends equivalent to 6 pizzas.

Draw Garfield’s budget constraint (put consumption on the vertical axis and leisure of the horizontal). Make sure to show the vertical and horizontal intercepts as well as the slope.

Answer 1

Garfield's budget constraint represents the limit on his consumption and leisure choices given his income and time. It is determined by the pizzas he receives in dividends, the pizzas he must pay in taxes, and the wage rate. The vertical intercept represents his maximum consumption of pizzas, while the horizontal intercept represents his maximum amount of leisure time.

Step-by-step explanation:

A budget constraint represents the limit on the consumption and leisure choices an individual can make given their available income and time. In this case, Garfield's budget constraint is determined by his income from work and the time he spends on leisure. The vertical intercept of Garfield's budget constraint represents his maximum consumption of pizzas, which is determined by the amount of pizzas he receives in dividends and the amount he must pay in taxes. The horizontal intercept represents the maximum amount of leisure time Garfield can have, which is the 16 hours he has available each day minus the 8 hours he spends sleeping. The slope of the budget constraint is determined by the wage rate, which is 2 pizzas per hour of work.