Question
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
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, U(c,l), where both goods are normal. But person 1 faces a market wage w1 and person 2 faces a market wage w2, with w1 > w2. Also, this household enjoys the non-earned income (dividends - lump sum tax > 0). Draw the budget constraint faced by the two-person household. What happens if the non-earned income of this household rises? Explain your results and interpret.
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