Active persons are those who are either employed or unemployed. • Very long term unemployment rate is the share of the unemployed persons since 24 months or more in the total number of active persons in the labour market. • Underemployed part-time workers are persons aged 15-74 working part-time who wish to work additional hours and are available to do so. UTILITY FUNCTION: An index that measures individual’s level of satisfaction or happiness from consumption of goods and leisure is called utility (U): U=f(C,L) • The utility function assigns a value to all possible combinations of C and L and has an ordinal interpretation. • The locus of points that generates the same level of utility is called indifference curve. Indifference curves are downward sloping Higher indifference curves indicates higher level of utility. Indifference curves do not intersect. Indifference curve are convex to the origin. The marginal utility of leisure (MU L) is the change in the utility resulting from an additional hour dedicated to leisure, keeping constant the amount of goods consumed. The marginal utility of consumption (MUc) is the increase in utility if the individual consumes 1 more $ worth of goods, keeping constant L . The slope of the utility curve in any point reflects the rate at which an individual is willing to substitue one good for the other, holding utility constant. The absolute value of the slope of an indifference curve is called marginal rate of substitution (MRS) in consumption, and is equal to the ratio of the marginal utilities ∆C ∆L =− MU L / MU C Budget constraint C=wh+V = w*(T-L)+ V = w*T + V – w*L The optimal point P – indifference curve is tangent to the budget line − MU L MU C = w • A commodity is a normal good when increases in income, holding the price of all goods constant, increase its consumption. E.g., good cars vs. cheap cars. • Leisure is a normal good (for most of us).
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- Fall '15