Neoclassical consumption model with elastic labor supply Consider a household that lives over two periods, t = 1, 2. The household starts with financial wealth f > 0. In period 1, the household spends L hours working at wage w per hour, consumes C1 and saves s1. In period 2, the household earns interest rate R on savings and subsequently consumes all these savings. The period budget constraints are therefore given by C1 + s1 = wL + f C2 = (1 + R)s1. The household takes the wage w in this decision problem as a given parameter. Preferences of the household over consumption and labor are represented by the utility function u (C1) + u (C2) bL