TANote-2

TANote-2 - Econ 102 Macroeconomic Theory 2nd TA Section...

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Unformatted text preview: Econ 102 Macroeconomic Theory 2nd TA Section Note TA (Section: 1P): Daisuke Miyakawa April 8th. 2008 1. Household Consumption-Leisure Choice Problem & Labor Supply Function Consider the following household problem: 8 > > > > > > > > > > > > > > > > > > < > > > > > > > > > > > > > > > > > > : max C;L U ( C;L ) = C & L 1 & & s.t. C = A + w P (1 & L ) , PC = PA + w (1 & L ) where C : Consumption (measured by the consumption good) L : Leisure (measured by the hours total of which is normalized as 1 (see the assumption below)) A : Initial Asset (measured by the consumption good) w P : Real wage Assume Household has 1 unit of time (i.e., hours worked + leisure hour = 1 ) Assume P = 1 ) w P = w As we brie&y discussed in the last session, this utility maximization problem leads to a labor supply function. There are two ways to solve this problem: The rst one is a usual maximization with a constraint and the second one is the short-cut technique you (will) study in the lecture....
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TANote-2 - Econ 102 Macroeconomic Theory 2nd TA Section...

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