lect07Labor - Labor Supply The budget line indifference...

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72 Labor Supply The budget line indifference curve analysis is somewhat different if the individual is a seller of one of the goods. Consider the choices of someone who is free to choose their hours of work each period. Illustrate the budget line of an individual endowed with T hours of leisure who can receive a wage rate of w per hour. Now suppose the person has a “non-labor” source of income due to investments. Draw the budget line for an individual with and endowment of $I of nonlabor income and T hours of leisure and a wage rate of w. T Leisure wT/P 2 X 2 T Leisure (I+wT)/P 2 X 2 I/P 2
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73 Illustrate what happens to this individual if their wage were to decrease. Because this individual sells his/her time, a decrease in the price of time has a negative income or wealth effect. T Leisure (I+wT)/P 2 X 2 I/P 2 (I+w'T)/P 2
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74 Consider a wage (price) increase for free time with an endowment of T units of leisure time (and zero units of X 2 ). The individual pictured above actually consumes more leisure (and
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lect07Labor - Labor Supply The budget line indifference...

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