# econ4 - ⊕ 7 To here adding 700 a worker is beneficial...

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Unformatted text preview: ⊕ 7 To here, adding 700 a worker is beneficial 700 <Some Application> ∘ Labor Supply - Why am I working only 8 hours per day? * Worker's Indifference Curve * Budget Constraint W L = M ∙ M: Money Income W: Wage Rate L: Labor W(T-R) = M T: total time (24hrs./day) WT-WR = M * Backward Bending Labor Supply Curve Labor Supply Schedule with various levels of wage rates. → W 1 < W 2 < W 3 < W 4 ∘ Effect of Social Welfare Policy * Subsidy vs. Food Stamp * Subsidy vs. Discount ∘ Consumption Over Time- Why do I save a portion of today's income?- Why do I borrow some money to spend today? * Assume only two time periods Current Income: M Future Income: M 1 Current Consumption: C Future Consumption: C 1 Interest Rate: r \$1 today = \$(1+r) tomorrow → W = M + M 1 (1+r) W 1 = (1+r)M + M 1 * Budget Constraint 1 C ∙ + 1 ∙ C 1 = M + M 1 ; evaluated for today (1+r) (1+r) (1+r)C + C 1 = (1+r)M + M 1 ; evaluated for tomorrow * Utility Function: U = U(C , C 1 ) ⊕ ⊕ * Lender & Borrower * Indifference curve for lenders & Borrowers “Prepare-for-Rainy-Day”- Lender “Enjoy-today's-Life”...
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## This note was uploaded on 04/04/2009 for the course ECON 361 taught by Professor Drabicki during the Spring '07 term at Arizona.

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econ4 - ⊕ 7 To here adding 700 a worker is beneficial...

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