ECO209Y5 Lecture : chapter 9 notes
Document Summary
Current budget constraint: c + sp = w (h-l) + pie t. Future budget constraint: c" = w"(h l") + pie t" + (1+r) sp. Lifetime budget constraint: c + c"/1+r = w(h-l) + pie t + (w"(h-l") + pie" t"/1+r) Mrs ( c, c") = 1+r (price of current consumption relative to future consumption) If w increases, ns(labour supplied) increases ( substitution > income) If r increases, ns increases ( intertemporal effect on leisure, i. e, increase in r increases the prices of current leisure relative to future leisure, therefore one leisures less now, and works more) If we increases, ns decreases. ( b/c increase in we means increase in all current consumptionleisure = current consumptiontherefore increase in leisure means decrease in ns) *graph of ns shifts to the right for increase in w and rshifts to the left for increase in we. Slope of demand for current consumption is mpc0
