1.Suppose that a person has the following Cobb-Douglas utility function:

U =C^ah^b

faces the budget constraint:C = wl+ N

faces the time constraint:T =l+ h

where C = consumption per period,h= hours of leisure, w= wage rate, N =non-labour income,l= hours worked, T = total time to be allocated.

a.Derive the person's labour supply equation.

b. Specify the regression equation you will use to estimate the above labour supply equation. What data you need to estimate this equation?

c.A reservation wage is defined to be the minimum wage necessary to entice a person enter the labour force. Derive an expression for this person's reservation wage based on your answer to part 'a' above.Under what conditions does the person participate?

d. Derive the effects on hours worked of a change in w, N and b.

e. Illustrate the effects of the changes in 'd' above in the usual leisure-consumption diagram.