Thu 8 Sep, 2016 03:59 am
I desperately need some help in understanding this.. Anyone? :-)
1. Suppose that U(C,L)=CL
a. Write out the optimal labor supply function in terms of wages and non-labor income. (Hint: We have two equations one links the slopes of our indifference curves and our budget constraint.
b. Using your answer from part a, describe how hours change with respect to a change in V.
c. Now do the same with respect to changes in w. Talk about the substitution and income effects.