Suppose the economy has a single household with total labour endowment , supplying to the market at money wage W and enjoying the rest as leisure, with utility , , where consumption (all wage income is spent). The supply of labour as a function of the real wage is
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Suppose the economy has a single household with total labour endowment L̅, supplying L^s to the market at money wage W and enjoying the rest as leisure, with utility U=(C)^β+(L̅-L^s)^β, 0<β<1, where consumption C=(W/P)L^s (all wage income is spent). The supply of labour as a function of the real wage is (A) L^s=(L̅(W/P)^(β/(1-β)))/(1+(W/P)^(β/(1-β))) (B) L^s=L̅/(1+(W/P)^(β/(1-β))) (C) L^s=((W/P)^β)/(L̅+(W/P)^β) (D) None of the above
Also written as: Suppose the economy has a single household with total labour endowment L_bar, supplying L^s to the market at money wage W and enjoying the rest as leisure, with utility U=(C)^(beta)+(L_bar-L^s)^(beta), 0<beta<1, where consumption C=(W/P)L^s (all wage income is spent). The supply of labour as a function of the real wage is
Budget constraint and consumer equilibrium has come up 99 times in 7 exams since 2004.
This question is on Labour supply and intertemporal choice, part of Budget constraint and consumer equilibrium in Microeconomics.
Treating leisure and future consumption as goods: the labour-leisure choice, saving and borrowing.
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Question from the DSE 2008 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.