The individual's utility function has the following form: U(C, L) = 5+ CL Here C indicates the consumption good and L the leisure. The individual has non-labour income R and Lo hours that can be used to work (h) or leisure. P = 1 is the numeraire. (a) Derive the Marshallian labour supply h*. (b) Derive the Marshallian elasticity of labour supply with respect to wages nм. (Note: this is a function of w, h and R) (c) Derive the Hicksian labour supply ĥ. (d) Derive the Hicksian elasticity of labour supply with respect to wages H. (Note: this is a function of w, h and Ū) (e) Assuming that w= 1, R 8 and Lo = 24: • Calculate the values of h* and ĥ (Hint: to do so, calculate before the optimal level of expenditure and of the utility.) What do you notice? • Calculate the values of NM and 7H; comment and compare the sizes of the elasticities • Verify that the Slutsky equation holds (recalling that NM = NH + whnRo) Ro

The individual's utility function has the following form: U(C, L) = 5+ CL Here C indicates the consumption good and L the leisure. The individual has non-labour income R and Lo hours that can be used to work (h) or leisure. P = 1 is the numeraire. (a) Derive the Marshallian labour supply h. (b) Derive the Marshallian elasticity of labour supply with respect to wages nм. (Note: this is a function of w, h and R) (c) Derive the Hicksian labour supply ĥ. (d) Derive the Hicksian elasticity of labour supply with respect to wages H. (Note: this is a function of w, h and Ū) (e) Assuming that w= 1, R 8 and Lo = 24: • Calculate the values of h and ĥ (Hint: to do so, calculate before the optimal level of expenditure and of the utility.) What do you notice? • Calculate the values of NM and 7H; comment and compare the sizes of the elasticities • Verify that the Slutsky equation holds (recalling that NM = NH + whnRo) Ro

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.11P

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