Scenario 21-2
Fred has recently graduated from college with a degree in journalism and economics. He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Fred is typically awake for 112 hours each week (he sleeps an average of 8 hours each day). For each hour Fred spends writing, he can earn $75. Fred is such a good writer that he can get paid for as many hours of writing as he chooses to work.
-Refer to Scenario 21-2.If Fred's wage increases to $90 per hour of writing,which of the following points would fall on his budget constraint?
A) 75 hours of leisure, $2,775 of consumption
B) 80 hours of leisure, $2,400 of consumption
C) 85 hours of leisure, $2,430 of consumption
D) 90 hours of leisure, $1,650 of consumption

Question

Quizplus · Accepted Answer

When Fred's wage increases to $90 per hour of writing, his budget constraint shifts outward, and he can afford to consume more and work less. Choice C falls on the new budget constraint where Fred works for 27 hours (112-85=27) and earns $2,430 (27 x $90) from writing. He can then use this money to consume $2,430 of goods and services while enjoying 85 hours of leisure. Choices A,B, and D are all points on the old budget constraint, which is no longer valid once Fred's wage increases.

Scenario 21-2 Fred Has Recently Graduated from College with a Degree in Degree