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Unformatted text preview: Econ 150 Final Review You'll also recall that I indicated that there would be one short question from the 'pre- midterm' period', in the final. THE FINAL EXAMINATION WILL COVER(VARIAN, 7TH EDITION): CH. 9 (PAGES 173-178 ONLY) CH. 10, 16, 18, 19, 20 TO 24 CH. 25 (PAGES 445-462 ONLY in 7th Ed, PAGES 438-456 ONLY IN 6TH Ed) CH 26 (PAGES 468-474 ONLY in 7th Ed, PAGES 461-467 ONLY IN 6th Ed) CH. 27 (PAGES 480-495 ONLY in 7th Ed, PAGES 473-491 ONLY in 6th Ed). Chapter 9(.8) Labor Supply 1. nonlabor income consumer initially has some money income M that she receives whether or not she works 2. opportunity cost of leisure price of an extra hours consumption of leisure is always your forgone labor income; is just he wage rate 3. full income (aka implicit income ) value of what the consumer owns her endowment of consumption goods and her endowment of her own time 4. measure income income she receives from selling off some of her time 5. real wage amount of consumption that the consumer can purchase if she gives up an hour of leisure 6. backward-bending labor supply an increase in the wage rate results in a decrease in the supply of labor Chapter 10 Intertemporal Choice 1. intertemporal choice saving and consuming, consumption, over time 2. future value budget constraint where price of future consumption is equal to 1 a. ( 29 ( 29 2 1 2 1 1 1 m m r c c r + + = + + where c is consumption and m is money in each period 3. present value- budget constraint where price of present consumption is equal to 1 a. r m m r c c + + = + + 1 1 2 1 2 1 b. In indifference curves on c 1 , c 2 graphs, slope of the line is -(1+r) and indicates willingness to substitute todays consumption for tomorrows consumption c. Convexity of preferences says consumer would rather have an average amount of consumption each period rather than a lot today and none tomorrow 4. lender if consumer chooses a point where c 1 < m 1 ; if consumer spends less than the money she has a. increasing the interest rate pivots the budget line around the endowment to a steeper position revealed preference tells us the new consumption bundle must be to the left of the endowment b. in consumer is a lender and interest rates increase, they will continue to lend (duh, they were lending at the old interest rates and now they are just making more money doing so) 5. borrower if consumer chooses a point where c 1 > m 1 ; if consumer spends more than the money she has a. decreasing the interest rate pivots the budget line around the endowment to a steeper position revealed preference tells us the new consumption bundle must be to the left of the endowment b. if consumer initially a borrower, and r decreases, continues to borrow because money is relatively cheaper c. if consumer initially a borrower, r increases, consumer still borrows they must necessarily be worse off because money is relatively more expensive 6. real interest rate interest rate taking into consideration inflation...
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- Fall '08