lecture4 - Agenda The Supply of Labor Productivity Output...

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