Lecture_7_for_students - Lecture 7 Labour-Leisure Choice...

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1/1/11 Lecture 7 Labour-Leisure Choice Firms and Production
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1/1/11 Government Policy: Are food stamps better than cash? Whitmore (2002): giving cash would not lower household’s nutrition and might reduce their odds of obesity. Some worry that cash could be spent on booze and drugs or lower nutrition. Felicity has a monthly income Y.
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1/1/11 Government Policy: Child care subsidy A household chooses between the hours of daycare per day and all other goods per day Originally at e1 on L0 If daycare price subsidy, the household is at e2 on Lps If cash transfer equal to Y0Y2, the household moves to e3 (L0 to LLS). Cash transfer is better.
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1/1/11 Hugo has 24 hours which is divided to H hours of working & N hours of leisure. He earns w1 per H Hugo spends Y on goods and services. We Assume price of them is 1=> Thus the quantity consumed of goods and services is Y . Consuming Y and N gives him utility [U=U(Y,N)]. Hugo’s income or budget constraint is: income) unerned is * (Y * 1 Y H w PY + = Labour-leisure choice ) 24 ( 1 N w Y - = Now find optimal N and Y.
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1/1/11 Finding leisure demand curve Hugo has U=U(Y,N) and is faced with two constraints: o L1: Y=w1(24-N) & slope=w1 o Time constraint: H=24-N At original equilibrium or e1 : N1=16, H1=8, Y=Y1=> wage ↑ to w2=>L1 to L2 and e1 to e2 => N2=12, H2=12, Y=Y2=> The horizontal axis
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1/1/11 Finding labour supply curve Using the leisure demand curve and the fact that H=24-N, we subtract N at each w from 24 hours and find the H at
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1/1/11 Assume the following utility function and constraints for Sofia. Y stands for other goods and N stands for
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Lecture_7_for_students - Lecture 7 Labour-Leisure Choice...

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