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14-1Productivity, Output, and Employment, Part 24-2Agenda•The Supply of Labor•Labor Market Equilibrium • Unemployment• Okun’s Law 4-3The Supply of Labor •Supply of labor is determined by individuals:¾Aggregate labor supply is the sum of individuals’labor supply.¾The labor supply of individuals depends on their labor-leisure choices.4-4The Supply of Labor •The income-leisure trade-off:¾Utility depends on consumption and leisure.¾Compare costs & benefits of working another day.•Costs: Loss of leisure time.•Benefits: More consumption because of higher income.¾Utility maximizing individuals will:•Work another day if the benefits exceed the costs and•Keep working additional days until benefits equal costs.
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