Labor-leisure Choice

Labor-leisure Choice - WORK, LEISURE AND CONSUMPTION In all...

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WORK, LEISURE AND CONSUMPTION In all our previous examples of utility maximization, the consumer was assumed to have either some endowment of money (m 0 ) or an initial endowment of the goods. We now consider the more realistic case in which the consumer must work to earn the money that (s)he can spend on consumption. The individual may have some property income also. The individual derives the utility from the consumption of a single good x and leisure. Leisure is time NOT SPENT WORKING. The total available time is T. T is distributed between hours of work (z) and leisure ( l ). Thus z + l =T l =T-z Suppose that the wage rate is w. Hence z hours spent at work yields wz in wage income. Let M 0 be the period’s property income. Assume that the price of the consumption good (x) is 1. If the individual consumes the bundle (x, l ), (s)he has to pay x (times 1) for the consumption good. But leisure is free----or so it seems. In reality the cost of 1 hour of leisure is the foregone wage of 1 hour of labor. The consumer’s monetary constraint is x=wz+ M (wage+porperty income)
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This note was uploaded on 10/19/2010 for the course ECON 1202 taught by Professor Matel during the Fall '08 term at UConn.

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Labor-leisure Choice - WORK, LEISURE AND CONSUMPTION In all...

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