2-25-09

# 2-25-09 - Microeconomics Class Notes 2/25/09 Labor Supply:...

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Microeconomics – Class Notes – 2/25/09 Labor Supply: Substitution effect – Move towards more work Income effect – When the price of something goes down (in this case, as wage increases), you become relatively more wealthy and so you consume more of all goods (in this case, more leisure). In this case, the labor supply actually bends backwards

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Idea that the labor supply is perfectly inelastic:
#8 on the review sheet The answer was actually (-1). #6.) #10.) M = (Px)*(X) + (Py)*(Y) M = 1*X + 1*Y M = 43.1 + 18.5 = #12.) As your income increases, you consume more of X and more of Y. Thus, they are both normal goods #13.) What happens when you take the partial derivative with respect to L and with respect G? How do you normally find the income-expansion curve? Set MRS = (Px / Py) This is always the case in quasilinear preferences (because you are just adding one of the variables on to the function of the other variable): U(X, Y) = X + f(Y) Either the X or the Y drops out and you get some quantity of Y or X. You will always have a vertical line or a horizontal line for the income expansion path:

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## This note was uploaded on 06/03/2009 for the course ECON 200 taught by Professor Nonnenmacher during the Spring '09 term at Allegheny.

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2-25-09 - Microeconomics Class Notes 2/25/09 Labor Supply:...

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