Chapter2
One-period model
Consider a close one-period model
Consisting of
The representative Consumer
1.
The representative Firm
2.
Government
3.
2.1 Consumer's Problem
Preference U(c,l) where c is consumption and l is leisure
U increasing in c and l
Indifference curve: the level of utility is the same along an
indifference curve, but the combination of the goods providing
that utility can be different.
An indifference map: a group of indifference curves that
represent the consumer's preference. The curves cannot
meet.
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The rate at which you exchange one good for another is called
the marginal rate of substitution (MRS) and analytically it is the
negative of the slope of an indifference curve.
The consumer constraint
Time constraint:
h: the time endowment
L less than h
Ns= h-l labor supply
W wage rate
Budget constraint: C= w(h-l) + pai -T
Lecture1
Tuesday, September 18, 2018
11:04 AM