{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

micro-fall-2007-11

micro-fall-2007-11 - An Example Labor Supply Notation x...

Info icon This preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Utility maximization with an initial endowment of goods Utility maximization with an initial endowment of goods Choose ( x 1 ; x 2 ) so that u ( x 1 ; x 2 ) is maximized under the constraints p 1 x 1 + p 2 x 2 ° p 1 ω 1 + p 2 ω 2 x 1 ± 0 x 2 ± 0. Interior Solution: MRS ( x 1 ; x 2 ) = p 1 p 2 p 1 x 1 + p 2 x 2 = p 1 ω 1 + p 2 ω 2 . Ani Guerdjikova Fall 2007 122 / 126
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Utility maximization with an initial endowment of goods The O/er Curve De°nition O/er curve The o/er curve is the geometric place of all optimal consumption bundles x = ( x 1 ; x 2 ) of a household for di/erent relative prices p 1 p 2 . 1 At an interior solution MRS ( x 1 ; x 2 ) = p 1 p 2 p 1 x 1 + p 2 x 2 = p 1 ω 1 + p 2 ω 2 . 2 Substituting for p 1 p 2 , we obtain the equation of the o/er curve: x 2 = MRS ( x 1 ; x 2 ) [ ω 1 ² x 1 ] + ω 2 . Ani Guerdjikova Fall 2007 123 / 126
Image of page 2
Utility maximization with an initial endowment of goods 6 - S S S S S S S S S S S S S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . l l l l l l l l l l l h h h h h h h h h h h h h h h h h h h h h x 1 ω 1 x 2 ω 2 r p 1 p 2 p 0 1 p 0 2 ? ............. p 00 1 p 00 2 - Ani Guerdjikova Fall 2007 124 / 126
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Utility maximization with an initial endowment of goods
Image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: An Example: Labor Supply Notation: x consumption good l labor p price of consumption good w wage π other income ¯ l total amount of time The household&s problem Choose ( x ; l ; f ) so that u ( x ; f ) is maximized under the constraints: px & wl + π & l & ¯ l , x ± Ani Guerdjikova ECON 313 Fall 2007 125 / 126 Utility maximization with an initial endowment of goods 6-¯ l l x π p & & & & & & & & & & & & . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x & l & Consumption-Labor Decision ............... w p Ani Guerdjikova ECON 313 Fall 2007 126 / 126...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern