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Labor Supply

The Theory of the Consumer derives the demand for a good from the Two Goods - Two Prices Model. 

The Supply of Labor can be derived from a similar analysis where the two goods are consumption and leisure.

Building Blocks

Budget Constraint

The hours of work N are given by N = 24 - leisureThe budget constraint is given by Pcons = WN = W(24 - leisure).

Utility and Indifference Curves

The utility function is U = U(cons,leisure).  Work enters the utility function indirectly because the agent has to give up some leisure to increase his hours devoted to work.

Getting Started with EconModel

The EconModel presentations are interactive graphical simulations of models.  more info.

To activate the EconModel presentation you need to download and install the EconModel program.  more info.

EconModel

The EconModel presentation shows what happens the wage rate changes.  It also analyzes the effects on the labor supply curve of two possible policy changes:  an income tax and a welfare program.


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Comments?  Questions?  macro-at-econmodel-dot-com  Copyright 2006 William R. Parke