Tuesday

 




Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 7 Topics for Further Study
Chapter 21 of 36 The Theory of Consumer Choice
Section 20 of 26
…
Figure 14 An Increase in the Wage
An increase in the wage can either result in more or less hours worked.
Panels (a) and (b) of this figure show how a person might respond to an increase in wage.
The graphs on the left show the consumer’s
· initial budget constraint, BC1, with lower wage
· new budget constraint, BC2, with higher wage
· before and after optimal choices between consumption and leisure, shown by dots on I1 and I2 curves
The graphs on the right show the resulting labor-supply curves.
…
Because hours worked equal total awake time hours minus hours of leisure any quantity change in hours of leisure causes an opposite change in the quantity of hours of labor supplied.
…
In panel (a), when the wage rises
· hours of work rises and leisure falls
· resulting in a labor-supply curve that slopes upward
In panel (b), when the wage rises
· both hours of work and leisure rise
· resulting in a labor-supply curve that slopes downward
…
Consider what happens when Sally's wage increases from $50 to $60 per hour.
Figure 14 shows two possible results.
In each case (a) and (b)
· the budget constraint, shown in the left graphs
· shifts outward from BC1 to BC2
· the budget constraint becomes steeper
…
At the higher wage, Sally earns more consumption for every hour of leisure she gives up.
Sally's preferences, shown by her indifference curves, determine how her choice regarding consumption and leisure responds to the higher wage.
…
In both panels consumption rises, from e to f.
But the response of change of leisure to the change in the wage is different in the two cases.
In panel (a) Sally responds to the higher wage by working more to enjoy much more consumption and less leisure.
In panel (b) Sally responds to the higher wage by working less and enjoys only a little more consumption and more leisure.
… …
total awake time
sō kakusei jikan
総覚醒時間

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