00:01
So the first thing we should do is just sketch a worker making a choice, right? so when a worker is making a choice, we are usually choosing between leisure and income, right? and the budget constraint usually looks something like this.
00:15
We have some non -labor income.
00:18
We are making a choice about how much leisure to consume, and we have an indifference curve that looks something like this with a tangency, right? the ones that are true are b, right, the marginal rate of substitution for leisure over the marginal, sorry, rate of substitution for consumption is equal to the wage rate.
00:45
This is exactly true, right? this is, again, just saying this, right? remember, the slope of the indifference curve is equal to the marginal, the ratio of margin.
00:56
Products, right? it's the marginal rate of substitution.
01:02
The market wage is equal to the slope of the budget line.
01:05
So b is equal to d, right? these are the exact same things, right? just said in different ways.
01:14
Saying that the consumer is going to trade off between leisure and income such that that tradeoff is equal to the wage, because if you give up one hour of income of leisure, you get the wage, is exactly the same...