宏观经济学Lecture 3-Chapter 4n.ppt

Chapter 4 Consumer and Firm Behavior: The Work-Leisure Decision and Profit Maximization Chong-En Bai and Binzhen Wu Outline One period model: static, no saving Model for consumers: consumption-labor decision Preference; budget constraint; choices; labor supply curve; consumption good demand curve Model for firm’s choices: labor demand. Technology; choices; labor demand curve; supply curve for output Competitive Equilibrium Comparative Statics: how the equilibrium is affected by the changes in the environment Taking the models to the data Outline Assumptions Assumption (1) rational agents: they optimize - they do the best they can given their objectives and the constraints they face. Exogenous variables vs. Endogenous variables. Exogenous variables are determined outside the model. Accept as given. Endogenous variables are determined by the model and the model tries to explain them Assumption (2) price taking – prices are exogenous to agents’ choices Representative Consumer - Preference Two goods: The consumption good: a good that represents an aggregation of all physical goods and services in the economy Leisure: any time spent not working in the market. A consumption bundle Three properties: The more, the better The consumer likes diversity Consumption good and leisure are normal goods Math expression: utility function U(C, l) (C1, l1) is strictly preferred by the consumer to (C2, l2) if U(C1, l1) U(C2, l2) The consumer is indifferent between (C1, l1) and (C2, l2) if U(C1, l1) = U(C2, l2) Graph representation: indifference curves Indifference Curves Marginal Rate of Substitution Marginal Rate of Substitution of leisure for consumption (MRSl,C) at point A = - the slope of the indifference curve passing through A = Ul(C, l) / Uc(C, l) ? -(C1 – C2) / (l1 – l2) if B is very close to A MRSl,C is the units of consumption the consumer is willing to sacrifice in order to gain one unit of leisure 1) MRSl,C is positive 2) MRSl,C is diminishing as the consumer re