Suppose a two-person household. Person 1 has h 1 units of time available and takes l 1

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Suppose a two-person household. Person 1 has h1 units of time available and takes l1 units of leisure time, while person 2 has h2 units of time available and takes l2 units of leisure time. Collectively, the two persons in the household care about their total consumption c, their total leisure l  =  l1 + l2, and they have preferences over their total consumption and total leisure just as specified in this chapter. But person 1 faces a market wage w1 and person 2 faces a market wage w2, with w1 >  w2.

a. Draw the budget constraint faced by the two-person household. What will the household do, that is, how much does each household member work?

b. What happens if the market wage of person 2 rises?

c. Explain your results, and interpret.

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Macroeconomics

ISBN: 978-0133847147

5th Canadian edition

Authors: Stephen d. Williamson

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