Suppose that the representative consumer$$s preferences change, in that his or her marginal rate of

substitution of leisure for consumption is higher for any quantities of consumption and leisure.

a$.$ Explain what this change in preferences means in intuitive language. Show the effect of this change

on the consumer$$s indifference curves and illustrate how this affects the consumer$$s optimal

consumption$-$leisure point on the consumption$-$leisure optimization diagram.

b$.$ What effects does this have on the competitive equilibrium, in terms of equilibrium real wage, hours

worked, output, and consumption? Work out the effects with the help of the CE diagram.

c$.$ Show how this change affects the labor market.

$($Note: the marginal rate of substitution of leisure for consumption is defined as $!!$

$"$

$!$#

$"="$

$"$#

$"$$ $"$: the quantity

of consumption that needs to be exchanged for a unit of leisure to keep the consumer on the same utility

level.$)$