Family labor supply A family with two adult members seeks to maximize a utility function of the
Question:
Family labor supply A family with two adult members seeks to maximize a utility function of the form U 1c, h1, h22, where c is family consumption and h1 and h2 are hours of leisure of each family member. Choices are constrained by c 5 w1 124 2 h12 1 w2 124 2 h22 1 n, where w1 and w2 are the wages of each family member and n is nonlabor income.
a. Without attempting a mathematical presentation, use the notions of substitution and income effects to discuss the likely signs of the cross-substitution effects ∂h1/∂w2 and
∂h2/∂w1.
b. Suppose that one family member (say, individual 1) can work in the home, thereby converting leisure hours into consumption according to the function c1 5 f 1h12, where f r . 0 and fs , 0. How might this additional option affect the optimal division of work among family members?
Step by Step Answer:
Microeconomic Theory Basic Principles And Extensions
ISBN: 9781305505797
12th Edition
Authors: Walter Nicholson, Christopher M. Snyder