Consider a consumer with the following utility function for consumption and leisure: U(R,C) = 160 In N +Y where N is the hours of leisure ("recreation") consumed per day (24 maximum) and Y is dollars spent on consumption (p = 1). The consumer has an hourly wage w. (a) Assume the consumer derives all income from work at a wage rate w. Derive the labor supply function, LS (w). (b) For what values of w does the consumer work zero hours? (Hint: does a corner solution arise?) (c) Suppose that w = 10. How many hours does this consumer work? If the wage rate increases to w' = 16, how many hours do they work? What is the total effect on the supply of labor?

Consider a consumer with the following utility function for consumption and leisure: U(R,C) = 160 In N +Y where N is the hours of leisure ("recreation") consumed per day (24 maximum) and Y is dollars spent on consumption (p = 1). The consumer has an hourly wage w. (a) Assume the consumer derives all income from work at a wage rate w. Derive the labor supply function, LS (w). (b) For what values of w does the consumer work zero hours? (Hint: does a corner solution arise?) (c) Suppose that w = 10. How many hours does this consumer work? If the wage rate increases to w' = 16, how many hours do they work? What is the total effect on the supply of labor?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider a consumer with the following utility function for consumption and
leisure:
U(R,C) = 160 In N +Y
where N is the hours of leisure ("recreation") consumed per day (24 maximum)
and Y is dollars spent on consumption (p = 1). The consumer has an hourly
wage w.
(a)
Assume the consumer derives all income from work at a wage rate
w. Derive the labor supply function, LS (w).
(b)
For what values of w does the consumer work zero hours? (Hint:
does a corner solution arise?)
(c)
Suppose that w = 10. How many hours does this consumer work? If
the wage rate increases to w' = 16, how many hours do they work?
What is the total effect on the supply of labor?

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