Demog C175 PS 3

Demog C175 PS 3 - Demography/Economics 175 Professor Ronald...

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Demography/Economics 175 Professor Ronald Lee Problem Set #3 Due: February 24, 2009 by 2pm Please turn in a hard copy of the problem set either at the beginning of class on February 24th or before class in the box located at the foot of the stairs in the Department of Demography (2232 Piedmont Ave). Questions about this problem set: please post your questions on bSpace forums: go to “Forums” -> “Problem sets” -> “Problem set #3”. Click on “Post new thread” to write your question, together with the “title” of the question. Once you are done writing your message, click on “Post Message”. If you encounter a problem, please send an email with your question to 175gsi2009@gmail.com I. Female Labor Force Participation Standard Model of Labor Supply: Y = Family Income (excluding wife’s income) w = Wife’s potential wage per hour of work T = Total discretionary time for wife l = Wife’s leisure or home production time C = Household Consumption of market goods U(C, l) = Household Utility Assumptions: - Positive marginal utility of C and l - Diminishing marginal utility of C and l A. The household maximizes its utility with respect to its budget constraint to obtain the optimal choice of C* and l* . In a diagram, draw this optimum. Make sure to label the axes and both intercepts, and make sure to label the indifference curve U and the budget constraint BC. Also, state the equation for the budget constraint. B. Now suppose that the wife’s wage increases. Draw the new budget constraint and label it BC . Draw the indifference curve tangent to the new budget constraint and label it U . Label the new optimum C* and l* . Is l* > l* or is l*<l* in the diagram? Why might either outcome be a correct solution to this problem? Repeat the drawing with the condition reversed.
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Demog C175 PS 3 - Demography/Economics 175 Professor Ronald...

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