ECON 2400 Lecture Notes - Lecture 10: Budget Constraint, Real Wages, Substitute Good

• School: York University
• Department: Economics
• Course: ECON 2400
• Professor: Wai- Ming Ho

Document Summary

Topic: the represe(cid:374)tative co(cid:374)su(cid:373)er"s budget co(cid:374)strai(cid:374)t of leisure in terms of consumption goods). Ns: work e ort supplied to the labor market: the time constraint for the consumer: l + ns = h, , time endowment: h labor income = wns w: real wage (the relative price. The representative consumer"s optimization taking as given h, w, , and. T, the consumer chooses (c,l) to maximize u(c,l), subject to the budget constraint c = w(h l) + t: the optimal consumption bundle is the point where the budget line is tangent to the highest possible indi erence curve. The marginal rate of substitution of leisure for consumption is equal to the real wage (the relative price of leisure in terms of the consumption goods): some special preferences 1. C and l are perfect substitutes: some experiments: 1. A change in real dividend or lump-sum tax, t 2. A change in the real wage, w 3.