ECO209Y1 Lecture Notes - Real Interest Rate, Kirov Plant, Autarky

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14 Nov 2010
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Eco 209 lec 3 Sept.30th, 2010
Labor demand Y=AF(K,N), W=MPN
w w w
ND1 ND2 ND
Firm 1 Firm 2 Total
Aggregate labor Demand : the sum of ND1 and ND2
Supply of Labor
Utility max by individual
NS depends on w and labor-leisure(normal goods) choice
Change in w => income effect & substitution effect
For an individual
An increasing in w (real wage) results in
1. Sub effect makes leisure more expensive => reduction in leisure (normal goods) or increasing in
labor supply
2. Income effect: increasing in wage => increasing income => increasing consumption in leisure
(normal goods) or decreasing in labor supply (not always true for an individual), but
Aggregate labor supply: upward sloping: implicate aggregate sub effect > income effect
Shift in NS
1. Rightward or upward shift
a. Decreasing in wealth
NS
N
w
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