DSE 2020 Question 9: Budget constraint and consumer equilibrium
A household with an endowment of 1 unit of time maximises u=lnc+bln(1−l), where c is consumption and l∈[0,1] is time spent working, financing consumption from labour income c=wl with w the wage per unit of labour time. If the market wage rate rises, the household's equilibrium labour supply
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A household with an endowment of 1 unit of time maximises u=ln c+bln (1-l), where c is consumption and l∈[0,1] is time spent working, financing consumption from labour income c=wl with w the wage per unit of labour time. If the market wage rate rises, the household's equilibrium labour supply (A) increases (B) decreases (C) remains constant (D) changes in an ambiguous manner
Also written as: A household with an endowment of 1 unit of time maximises u=ln c+bln (1-l), where c is consumption and l in [0,1] is time spent working, financing consumption from labour income c=wl with w the wage per unit of labour time. If the market wage rate rises, the household's equilibrium labour supply
Budget constraint and consumer equilibrium has come up 99 times in 7 exams since 2004.
What this question tests
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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