DSE 2008

[The Villain]

http://economicsentrance.weebly.com/uploads/1/1/0/5/1105777/28_june_2008_option_a.pdf


Someone please help me with question 43..

[kangkan]

solve for max U(R,C) sunbject tp Pc+WR=WR*  where R*=L*=labour endowment...  :)

[The Villain]

Could u elaborate kangkan..I'm not able to reach the answer :(

[kangkan]

Hi..the algebra is quite involved..but my best try

du/dc= bC^1-b   du/dr=  bR^1-b

Now equate du/dc /du/dr=p/w

We get C/R=(w/p)^(1/1-b)

Now put the value this C in the budget equation pc+WR=L*  after simplification you will get the value of R*=  L*/[1+(w/p)^b/1-b]   now Ls=L*-R* ,,,this will give yoi option a

:)

Did you write ISI?

[Shefali]

how did you find R*...its not cuming .

[Akshay Jain]

[kangkan]

@shefali:
did you substitute the value of C in the budget constraint?

[The Villain]

Thanxx Akshay and Kangkan :)

[phelps.phan]

Thank you kangkan/ron/akshay very helpful.
Pls clarify my doubts.
qn 44. Lets say we are plotting W/P in x axis and Ls in Y axis. An increase in L(bar) increases Ls for a given W/P, in that case the curve shifts up isn't it?

46.I don't understand how we arrive at option c. Option c means Price level does not affect output. But we do see from the above qns the change in price level affects Ls and Ld. If L is changed at equilibrium by change in price, Y also is changed isn't it which means the aggregate supply does have some slope. Pls help!

[Akshay Jain]

just evaluate the sign of dLs/dLbar (partial derivative of labor supply function)
i think it will turn out to b positive which means that for a given W/P an increase in Lbar increases Ls
the Ls curve will shift up...

[Saurabh815]

how to determine whether we have to take real wage on x-axis or y-axis? As the direction of shift depends on it..

[Gayyam]

Hi Kangkan and Akshay,

How are you guys getting the budget constraint as c*P + Ls*W = L*W?

The question explicitly states that 'The only source of income of the household is the wage income and it spends its entire wage earning in buying consumption goods at the price P'.
I thought this would mean c*P = Ls*W....(consumption at price P = wage earning, i.e. Ls*W).

Using this as the budget constraint, we get (b) as the answer.

[Dreyfus]

@Gayyam...the budget constraint in this case if we take C and labour should look like P*C = W*Ls
But this function is in labour and consumption space and its upward sloping as labour behaves like aneconomic bad.
So to get the bc in consumption and Leisure space, all u hv to do is add w*L both side so that after rearranging ull get P*C + W(L-Ls) = W*L
Where L-Ls is leisure and its per unit cost is the wage rate which is forgone!

[Gayyam]

Thank you! :) I got it now.

[phelps.phan]

Akshay/anyone for qn 46, pls tell how we derive the Aggregate Supply from Ls and Ld that we found from the previous qns.thnx.

[mrittik]

Akshay has already solved this....

[Gayyam]

Akshay has solved it here

http://discussion-forum.2150183.n2.nabble.com/Dse-2008-pls-help-tp7593118p7593146.html

[phelps.phan]

Thank u but Akshay solved to get Ls and Ld. But how to we derive AS from it?