2010_lecture_7_ho

2010_lecture_7_ho - Economics 101Lecture 7 Labor Supply and...

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Economics 101—Lecture 7 Labor Supply and Consumer Surplus George J. Mailath February 3, 2011
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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 Shephard’s 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 ± ²³ ´ The Substitution Effect x i ( p , I ) I x c i ( p , V ( p , I )) ± ²³ ´ The Income Effect .
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Another picture i is a normal good x i / I > 0 x i / p i < x c i / p i < 0 . i is an inferior good x i / I < 0 x i / p i > x c i / p i .
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Labor supply Individual chooses consumption, c , labor, ± , and leisure,
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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_ho - Economics 101Lecture 7 Labor Supply and...

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