ECON100A_10 - CIRCULAR FLOW DIAGRAM Market for Finished...

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 1/4/2008 1 Market for Factors of Production Market for Finished Goods & Services HOUSEHOLDS FIRMS DEMAND (for Goods & Services) $ $ $ $ SUPPLY (of Factors of Prod) CIRCULAR FLOW DIAGRAM
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 1/4/2008 2 Review
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 1/4/2008 3 The Labor-Leisure Decision Tangency Condition: At Le*, I* slope of indif curve = slope of budget line MRS Le, I = w Budget Condition Must be on budget line wL e * + I * = I 0 + 168w Demand for leisure determines HH’s Supply of labor L a I 168 L e I 0 I 0 + 168w L e * I *
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 1/4/2008 4 Question 1 Is the point indicated below an optimal choice of leisure and disposable income? A. Yes B. No C. Can’t tell ←La Le→ I
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 1/4/2008 5 Question 2 Is the point indicated below an optimal choice of leisure and disposable income? A. Yes B. No C. Can’t tell ←La Le→ I
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 1/4/2008 6 Question 3 Would the individual depicted ever choose to work, given some different wage? A. Yes B. No C. Can’t tell ←La Le→ I
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 1/4/2008 7 Question 4: Who is Lazier?  A, B, or C=Can’t Tell A B ←La Le→ I ←La Le→ I
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 1/4/2008 8 SUPPLY OF FACTORS OF  PRODUCTION Capital
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 1/4/2008 9 Overview Firms need labor and capital Households supply these We have seen labor supply decision Supply of capital involves trade-off between consumption now and consumption later
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