Textbook Notes (368,844)
Canada (162,200)
Economics (385)
ECO209Y5 (3)
Fiag (2)
Chapter 5

chapter 5

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Chapter 5 things to remember1supply of labour is in part determined by taxes T and dividend income pai2comsumer choose C and Ns as well of as possible given w T and pai3the representative firm choose Nd to maximize profit YzKNd and maximize profit paiY wNd the firm treats Z K AND W as given In equilibrium the profit that representativge firm earns must be equal to the dividend income received by the consumer4the marginal rate of substitution of leisure for consumption is equal to the marginal rate of transformation which is equal to the marginal product of labour That is because the consumer and the firm face the same market real wage in equilibrium the rate at which the consumer is just willing to trade leisure for consumption is the same as the rate at which leisure can be converted into consumption goods by using the production techonology5in optimal model we can focus solely on how production is arranged to make the representative consumer as well off as possible6optimal model as if an invisible hand were guiding the actions of individuals toward a state of affairs b
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