Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 4] CONSUMER DEMAND THEORY 99
Fig. 4-35
(c) Fig. 4-36 shows that after working 40 h at W ¼ $5 (point A), the individual will work an additional 20
hours per week for a total of 60 h per week and a weekly salary of $400 (point C) if the overtime wage
rate is $10 per hour (the slope of AC).
Fig. 4-36
4.41 Suppose that an individual’s income is $100 the year before retirement (period 1) and $60 the year after
retirement (period 2), and that net savings over the two periods are zero. If the individual can either
borrow against future income or lend from present income at a 5% interest rate (r), (a) derive and
plot the individual’s budget constraint between period 1 and period 2. (b) If the individual is
in equilibrium by transferring $20 of income from period 1 to period 2, draw a figure showing how
this equilibrium was reached. How much does this individual consume in period 1 and period 2 at
equilibrium?