lect5 - Leisure Consumption and Labor Supply Intermediate...

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Unformatted text preview: Leisure Consumption and Labor Supply Intermediate Microeconomics Amy Brown University of California, Los Angeles August 18, 2008 A. Brown (UCLA) Econ 11 Lecture 5 08/18/08 1 / 17 Outline of Lecture 1 Labor Supply and Market Participation 2 Intertemporal Choice and Investment Decisions 3 Break 4 Review for Midterm The new material here comes from chapters 16 and 17. I will only require that you know up to and including "Labor Market Equilibrium" in chapter 16 and up to "The Firm&s Demand for Capital" and also the "simple case" of the "Present Discounted Value Approach to Investment Decisions" in chapter 17. A. Brown (UCLA) Econ 11 Lecture 5 08/18/08 2 / 17 Time as a Consumption Good Leisure provides us with utility. Time spent not working is lost income. Constraint of limited time. Think about allocation of time like allocation of income: spent on di/erent "activities." A. Brown (UCLA) Econ 11 Lecture 5 081808 3 17 Simple Model of Labor Supply Household has preferences over leisure, l , and consumption goods, c . U ( l , c ) Budget Constraint: Can spend time either on leisure or working at an hourly wage w . May have additional outside income M . Whatever time is not spent in leisure is spent at work, L . pc & wL + M Time Constraint: 24 l = L A. Brown (UCLA) Econ 11 Lecture 5 08/18/08 4 / 17 Combine Time and Budget Constraints Leisure is treated like a good with price w . Combining our constraints: Budget Constraint: pc & wL + M Time Constraint: 24 = l + L pc + wl & 24 w + M A. Brown (UCLA) Econ 11 Lecture 5 08/18/08 5 / 17 Optimal Leisure and Consumption Choice...
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lect5 - Leisure Consumption and Labor Supply Intermediate...

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