This preview shows pages 1–8. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
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 nonlabor 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 nonlabor income....
View
Full
Document
This note was uploaded on 03/02/2011 for the course ECON 101 taught by Professor Dannicatambay during the Spring '08 term at UPenn.
 Spring '08
 DANNICATAMBAY
 Microeconomics, Consumer Surplus, Utility

Click to edit the document details