Chopin loves to listen to his mother and sister playing piano, they are better piano players than him. He also loves to buy fancy clothing and to eat out. His utility of consumption and leisure is U = 0.210.8 where c is consumption of all other goods and I is leisure. If price of consumption is $1, wages are $2, and there are 24 hours in a day, answer the following questions. (a) Find Chopin's supply of labor in terms of hours. Hint: you can use big L to indicate labor. (b) Explain the substitution and income effects of a wage increase and the intuition behind it. No calculations needed.
Chopin loves to listen to his mother and sister playing piano, they are better piano players than him. He also loves to buy fancy clothing and to eat out. His utility of consumption and leisure is U = 0.210.8 where c is consumption of all other goods and I is leisure. If price of consumption is $1, wages are $2, and there are 24 hours in a day, answer the following questions. (a) Find Chopin's supply of labor in terms of hours. Hint: you can use big L to indicate labor. (b) Explain the substitution and income effects of a wage increase and the intuition behind it. No calculations needed.
Chapter16: Labor Markets
Section: Chapter Questions
Problem 16.2P
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