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PaulKet PaulKet
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6 years ago
Consider a consumer with preferences for consumption of a composite good (C) and leisure (L) given by the following utility function:
   U(C,L) = 2C1/2 + L
Denote the consumer's wage rate by w and total time available for labor and leisure is normalized to one. The price of consumption is one. Denote the amount of labor supplied as N, so that
N + L = 1. The consumer also earns non-labor income ("allowance") of 0.
a.   Write out the budget constraint determining feasible allocations of leisure and consumption.
b.   Compute the optimal bundle of leisure and optimal bundle of consumption.
c.   Derive the consumer's labor supply function: N*(w, ).
d.   Determine the effect of increasing non-labor income on the supply of labor (that is, compute the relevant partial derivative).
e.   How does non-labor income affect the consumption of the composite good, C?
f.   Compute the effects of an increase in wage on consumption and labor supply. Is leisure a normal good?
Textbook 
Microeconomics: Theory and Applications with Calculus

Microeconomics: Theory and Applications with Calculus


Edition: 4th
Author:
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The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
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SaHiN22SaHiN22
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PaulKet Author
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6 years ago
Good timing, thanks!
54321abs
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Yesterday
Just got PERFECT on my quiz
Shuqin
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2 hours ago
Smart ... Thanks!
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