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101-2010-L8 - Econ101 Lecture 8 Consumption and Leisure...

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    Econ 101 Lecture 8 Consumption and Leisure Decisions Firm’s problem
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    Figure 4.12  Real Wage and Average Weekly  Hours in the United States, 1980–2003
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    Labor supply in the U.S., 1980-2003 Income effect dominates Leisure increases if wage increases Labor supply curve N s w
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    Consumers and firms Consumers demand consumption goods and  supply labor Firms supply consumption goods and  demand labor Their respective problems are very similar Consumers choose quantity of goods and labor  supply  maximizing utility  given budget constraint Firms choose quantity of goods and labor demand  maximizing profits  given the production technology
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    Introducing another good friend Representati ve Firm (RF) Like the representative consumer, the RF acts as  a stand-in for all producers in the economy Less controversial that the representative  consumer (will show why in a moment)
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    The Aggregate Production  Function Y   is  output  (think of it as GDP) K   is  capital  (plants, equipments, etc.)  exogenous in our static model, will become  endogenous later N d   is  labor , chosen by the firm z   is  total factor productivity  (TFP) ) , ( d N K zF Y =
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    What is TFP?
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