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 - leisure. The budget constraint is given by P·cons = W·N = 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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