1. (Labour Supply) A worker derives utility from consumption (that is, goods per day), denoted by Y, and leisure, denoted by L: U = U (Y, L) and faces the "budget" constraint Y = w (24 - L) (NB: In contrast to the lecture handout, initially the worker has no nonlabour income.) (a) Is w "real" or "nominal" wage? (b) Show on a diagram an optimal choice of Y and L, in which both are positive. The worker receives a legacy which gives him nonlabour in- come of R. Show the impact on his optimal income-leisure choice, if (i) leisure is normal, (ii) leisure is inferior. Which seems more plausible?
1. (Labour Supply) A worker derives utility from consumption (that is, goods per day), denoted by Y, and leisure, denoted by L: U = U (Y, L) and faces the "budget" constraint Y = w (24 - L) (NB: In contrast to the lecture handout, initially the worker has no nonlabour income.) (a) Is w "real" or "nominal" wage? (b) Show on a diagram an optimal choice of Y and L, in which both are positive. The worker receives a legacy which gives him nonlabour in- come of R. Show the impact on his optimal income-leisure choice, if (i) leisure is normal, (ii) leisure is inferior. Which seems more plausible?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Can you help me with part b please?
Transcribed Image Text:MICROECONOMICS PROBLEM SET 3
APPLICATIONS OF CONSUMER THEORY
1. (Labour Supply) A worker derives utility from consumption
(that is, goods per day), denoted by Y, and leisure, denoted by L:
U = U (Y, L) and faces the "budget" constraint Y w (24 - L)
(NB: In contrast to the lecture handout, initially the worker has
no nonlabour income.)
=
(a) Is w "real" or "nominal" wage?
(b) Show on a diagram an optimal choice of Y and L, in which
both are positive.
The worker receives a legacy which gives him nonlabour in-
come of R. Show the impact on his optimal income-leisure
choice, if (i) leisure is normal, (ii) leisure is inferior. Which
seems more plausible?
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