Lecture 26 - Announcements HW for ch. 11-12 due Monday HW...

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Announcements HW for ch. 11-12 due Monday HW for ch 13 due next Thursday Friday – ch13 in class. Ch14 on Monday iClicker totals are updated (out of 45.5)
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LET’S TURN FROM THE FIRM’S DEMAND FOR LABOR TO THE HOUSEHOLD’S SUPPLY OF LABOR – CH12 Every household must make three basic decisions: 1. How much of each product, or output, to demand (we talked about this already – choose to maximize utility subject to the budget constraint) 2. How much labor to supply 3. How much to spend today and how much to save for the future
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HOUSEHOLD CHOICE IN INPUT MARKETS – THE SUPPLY OF LABOR THE LABOR SUPPLY DECISION 1. Whether to work 2. How much to work 3. What kind of a job to work at As in output markets, households face constrained choices in input markets. They must decide 1. Availability of jobs 2. Market wage rates 3. Skills they possess In essence, household members must decide how much labor to supply. The choices they make are affected by
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HOUSEHOLD CHOICE IN INPUT MARKETS – THE SUPPLY OF LABOR Basically, people can do three things with their time: 1.Work for pay 2.Do “nonmarket” work 3.Spend leisure time Trading off one good for another involves buying less of one and more of another, so households simply reallocate money from one good to the other. “Buying” more leisure or nonmarket work, however, means reallocating time between paid and non-paid activities. For each hour of leisure that I decide to consume, I give up one hour’s wages. Thus the wage rate is the price of leisure . Note: For the most part, we will use the term “leisure” to include both leisure and “nonmarket work”
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HOUSEHOLD CHOICE IN INPUT MARKETS – THE SUPPLY OF LABOR The relationship between the wage and how much we want to work is represented by the labor supply curve which is a diagram that shows the quantity of labor supplied at different wage rates. Its shape depends on how households react to changes in the wage rate. Like other things we’ve seen, people will basically try to allocate their time so that the marginal utility of the last unit of time spent on each activity is the same. This maximizes their utility. (MU x /H x =MU y /H y , where H=hour) Working gives utility through paying us $$ but gives us disutility as well (because sometimes it sucks).
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HOUSEHOLD CHOICE IN INPUT MARKETS – THE SUPPLY OF LABOR INCOME AND SUBSTITUTION EFFECTS OF A WAGE CHANGE As wages rise, we might want to work more since higher pay may mean that the utility gained by working more may now outweigh the disutility. In such as case, we say that the
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This note was uploaded on 12/20/2011 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

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Lecture 26 - Announcements HW for ch. 11-12 due Monday HW...

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