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.