Lecture_3_February_2

Lecture_3_February_2 - LOGISTICS Read this week Chapter 2...

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February 2, 2010 1 L OGISTICS Read this week Chapter 2 (static consumption-leisure theory) Read for next week Chapter 3 and Chapter 4 (consumption-savings theory) Practice Problem Set 1 Solutions posted on web Practice Problem Set 2 posted on web Reviews consumption-leisure theory Discuss in recitations this week
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February 2, 2010 2 I N THE N EWS Current Economic Events News Supplement 1 posted on web After Tax Wages News Supplement 2 Value-Added Tax
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C ONSUMPTION- L EISURE M ODEL F EBRUARY 2, 2010
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February 2, 2010 4 B ASICS Introduction Consumption-Leisure Model provides foundation for Labor-market supply function Goods-market demand function An application of the basic consumer theory model… …we will put a macro interpretation on it
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February 2, 2010 5 B ASICS Introduction Consumption-Leisure Model provides foundation for Labor-market supply function Goods-market demand function An application of the basic consumer theory model… …we will put a macro interpretation on it Only one time period – no “future” for which to save
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February 2, 2010 6 B ASICS Introduction Consumption-Leisure Model provides foundation for Labor-market supply function Goods-market demand function An application of the basic consumer theory model… …we will put a macro interpretation on it Only one time period – no “future” for which to save Notation c : consumption (“all stuff”) n : number of hours spent working per week l : number of hours leisure per week (time spent not working) P : dollar price of one unit of consumption (a nominal variable) W : hourly wage rate in terms of dollars (a nominal variable) t : tax rate on labor income n + l = 168
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February 2, 2010 7 U TILITY Model Structure Preferences u ( c , l ) with all the “usual properties” Strictly increasing in c Strictly increasing in l Diminishing marginal utility in c Diminishing marginal utility in l Plotted in good-by-good spaces: c u(c,l) leisure u(c,l)
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February 2, 2010 8 U TILITY Model Structure Preferences u ( c , l ) with all the “usual properties” Strictly increasing in c Strictly increasing in l Diminishing marginal utility in c Diminishing marginal utility in l Plotted in good-by-good spaces: Plotted as indifference curves c u(c,l) leisure u(c,l) leisure c
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February 2, 2010 9 U TILITY Model Structure Preferences u ( c , l ) with all the “usual properties” Strictly increasing in c Strictly increasing in l Diminishing marginal utility in c Diminishing marginal utility in l Plotted in good-by-good spaces: Plotted as indifference curves Utility side of consumption-leisure model no different than Chapter 1 model c u(c,l) leisure u(c,l) leisure c
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February 2, 2010 10 B UDGET C ONSTRAINT Model Structure Consumer must work for his income Y no longer “falls from the sky” Pc Y
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February 2, 2010 11 B UDGET C ONSTRAINT Model Structure
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This note was uploaded on 03/08/2011 for the course ECON 602 taught by Professor Chugh during the Spring '11 term at Johns Hopkins.

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Lecture_3_February_2 - LOGISTICS Read this week Chapter 2...

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