2010_lecture_7

2010_lecture_7 - Economics 101Lecture 7 Labor Supply and...

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Unformatted text preview: Economics 101Lecture 7 Labor Supply and Consumer Surplus George J. Mailath February 3, 2011 In our last episode 1 The expenditure function e ( p , u ) gives the smallest level of income needed to achieve a level of utility u , given prices p . The associated compensated demands are x c ( p , u ) , so that e ( p , u ) = i p i x c i ( p , u ) . The uncompensated demands are also called Marshallian demands , and the compensated are also called Hicksian demands . 2 Shephards Lemma : e ( p , u ) / p i = x c i ( p , u ) . 3 The Slutsky equation : x i ( p , I ) p i = x c i ( p , V ( p , I )) p i The Substitution Effect x i ( p , I ) I x c i ( p , V ( p , I )) The Income Effect . The picture Another picture i is a normal good x i / I > x i / p i < x c i / p i < . Another picture i is a normal good x i / I > x i / p i < x c i / p i < . i is an inferior good x i / I < x i / p i > x c i / p i . Labor supply Individual chooses consumption, c , labor, , and leisure, h , to maximize utility U ( c , h ) subject to two constraints: + h = T , where T is the total amount of time available, and c = w + n , where n is non-labor income. Labor supply Individual chooses consumption, c , labor, , and leisure, h , to maximize utility U ( c , h ) subject to two constraints: + h = T , where T is the total amount of time available, and c = w + n , where n is non-labor income....
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This note was uploaded on 03/02/2011 for the course ECON 101 taught by Professor Dannicatambay during the Spring '08 term at UPenn.

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2010_lecture_7 - Economics 101Lecture 7 Labor Supply and...

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