When labor supply is a Household decision, we demonstrated the following optimum condition. For the Household...

 

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When labor supply is a Household decision, we demonstrated the following optimum condition. For the Household model there are two (at least) uses of household time (hours of productive household work, H, and hours of Leisure, L), and one use of labor market time, M, hours of labor market work. Therefore for each householder,i, the optimum is: MU MU, If there are two householders (i=1 and i=2) then there are two sets of such optimum conditions. 1. In words, explain what these optimum conditions mean. 2. Suppose there are two householders, Pat and Sasha, making joint labor supply decisions. Suppose that only Pat is offered a wage increase from $30 per hour to $50 per hour. Given this change compare and explain the possible new household optimum with the original household optimum for Pat and for Sasha. (That is, given this change BOTH Pat and Sasha will decide on new optimal allocations of time to household work, leisure, and market work. Discuss the direction of each change for Pat and for Sasha; explain why.) Please be sure to discuss any possible Income Effects and Substitution Effects. When labor supply is a Household decision, we demonstrated the following optimum condition. For the Household model there are two (at least) uses of household time (hours of productive household work, H, and hours of Leisure, L), and one use of labor market time, M, hours of labor market work. Therefore for each householder,i, the optimum is: MU MU, If there are two householders (i=1 and i=2) then there are two sets of such optimum conditions. 1. In words, explain what these optimum conditions mean. 2. Suppose there are two householders, Pat and Sasha, making joint labor supply decisions. Suppose that only Pat is offered a wage increase from $30 per hour to $50 per hour. Given this change compare and explain the possible new household optimum with the original household optimum for Pat and for Sasha. (That is, given this change BOTH Pat and Sasha will decide on new optimal allocations of time to household work, leisure, and market work. Discuss the direction of each change for Pat and for Sasha; explain why.) Please be sure to discuss any possible Income Effects and Substitution Effects.

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Initially the optimum point is represented at the point A in the figure the indiffe... View the full answer