Question

Explain why it is not optimal for the representative household in the one period model to choose a leisure- consumption pair where the marginal rate of substitution (MRS) between consumption and leisure is greater than the marginal rate of transformation (MRT) between consumption and leisure. How could you increase the welfare of the household? You may use a diagram to help with your explanation.

Answer 1

Answer:)

In order to understand the scenario , it is important to know that how consumers behave on the concepts  

when they fight and manage with the idea of restricted assets, It is essential though to know the slope of

an indifference curve at a specific bundle . It is also represented as a Marginal Rate of Substitution,

moreover it is the most extreme idea of a purchaser mechanism that will exchange to get one more unit of

another good. It is reflected as Marginal Rate of Transformation , that fosters the market forces on the

purchaser. For example A could exchange burgers for sandwiches in the commercial center, where the

amount A pays and her pay is fixed.

  

   We are attempting to manage an obliged expansion issue, where now a purchaser boosts utility subject to a

budget limitation.

The optimal bundle must be on the budget limitation. Bundles that lie on indifference curves over the

imperative, for example, those on I3, are not in the open door set. So the fact that A inclines toward F on

indifference curve I3 to E on I2, F is excessively costly and she couldnot buy it. In spite of the fact that A could

purchase a bundle inside the budget imperative, she doesn't have any desire to do as such, on the grounds that

more is superior to less: For any bundle inside the limitation, (for example, d on I1), there is another bundle on the

imperative with a greater amount of at any rate one of the two merchandise, and consequently she inclines towards

that bundle. Subsequently, the optimal bundle must lie on the budget imperative. Bundles that lie on indifference

curves that cross the budget requirement, (for example, I1, which crosses the requirement at an and C) are less

attractive than certain different bundles onthe limitation. Just a portion of the bundles on indifference curve I1 exists

in the opportunity set: Bundles an and c and all the focuses on I 1 between them, By the more-is-better property,

A inclines toward e to d since e has a greater amount of the two Burgers and Sandwiches than D. A lean towards E

to A , C , and the wide range of various focuses on I 1—even those, similar to g, that A can't manage. Since

indifference curve I 1 crosses the budget requirement, territory B contains in any event one bundle that is wanted to

—lies above and to one side of—at any rate one bundle on the indifference curve.

In this way the optimal bundle must lie on the budget requirement and be on an indifference curve that doesn't cross

it. Such a bundle is the buyer's ideal. In the event that A is expending this bundle, A has no impetus to change

her conduct by subbing one useful for another.

  {x axis shows Sandwiches

y axis shows burgers}