Lecture 7 - ECONOMICS 100A Professor Dan Acland 09/16/10...

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ECONOMICS 100A Professor Dan Acland 09/16/10 Lecture 7 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy, or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ICLICKER QUIZ ANNOUNCEMENTS We’re short a couple of GSI’s today because two of my GSI’s are busily grading your problem sets. And my hope is that we’ll have the problem sets back to you by your first section next week, so it might take until your second section if you have a Monday-Wednesday section. LECTURE So the reading that was assigned for today was about labor supply and the supply and demand among households (individuals) for capital (saving and borrowing), and how well the substitution effects show up in those models. This is mostly the same fundamental concept that we learned on Tuesday, but I realize that some of these concepts are hard to pick up, so we will focus just on labor supply today, and we’ll focus on what income effects (wealth effects) and substitution effects are really doing. I’ll try to point out the ways in which it’s different in a model when you have an endowment that you can sell (in this case, the endowment is time). Hopefully you’ll see how these concepts map through from what we did Tuesday to what we’re doing today. Slide : Lecture outline: 1. Wealth effects in the labor-supply model When financial endowment goes up. When time endowment goes up. There are two different ways we can shift a person’s wealth, because this is someone who is trading off money against time. We could increase their wealth by either giving them more time or more money. 2. Labor-supply decomposition: Wealth and substitution effects together. A numerical example. 3. Reservation wages: what does it take to make you work? The reservation wage is the wage below which you might choose not to work at all; you would reserve your labor from the market. Slide : Some empirical regularities from labor economics. 1. If you give people money, they work less. 2. If you give people free child-care, they work more. 3. If you raise wages for people who are already working, it has no effect on their labor supplies (roughly speaking). 4. If you raise wages for people who are not already working, they start working. We’re going to see how the models we know work with these empirical regularities. Empirical means something you can actually observe. Most of what we’re doing in this class is theoretical. A lot of economists think there is too much theory in economics and instead do empirical work, which is like saying, “Let’s go look at the
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ECONOMICS 100A ASUC Lecture Notes Online: Approved by the UC Board of Regents
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This note was uploaded on 02/06/2012 for the course ECON 100A taught by Professor Woroch during the Fall '08 term at Berkeley.

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Lecture 7 - ECONOMICS 100A Professor Dan Acland 09/16/10...

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