00:01
So let's try to set this up, right? we need to draw preferences for these people.
00:05
So let me try to draw these preferences.
00:08
People are making a choice here between l, which is leisure, and c, which is equal to consumption or income, if you prefer, right? because you can use income to buy things.
00:21
So here, what we would say is that we normally draw these things as, look, you can max out.
00:30
Out at 24 hours of leisure.
00:33
And then if you work, you can get 24 times the wage and zero hours of leisure.
00:40
Now, sometimes people say, well, you can't actually work 24 hours a day.
00:44
We're going to limit it to 16 hours of work or 12 hours of work or whatever, whatever.
00:51
But this is the most general setup, right? you can take 24 hours of leisure and earn nothing.
00:57
You can work every waking moment and earn a lot of money.
01:00
And originally both of these people are observed to locate at the same point.
01:06
So they both consume at $25 an hour, 12 hours of leisure.
01:14
That means they work 12 hours and they consume 12 hours of leisure, right? and now this is so we have the original point.
01:23
So i'm going to draw these preferences or let's actually do something else first.
01:29
So now we have a shot and the wage is going to fall.
01:34
So this is going to affect the budget constraint that we've drawn.
01:38
Because now when you work, you don't get paid as much.
01:41
If you work, oh, sorry, this should be, if you work before, you got 24 times 25, right? 24, because the wage was 25.
01:54
But now if you work all your hours, you're only going to get 24 times 22, right? because you're getting $3 hour less.
02:00
So the new budget constraint is going to look something like this, right, where it's pivoting down.
02:09
If you don't work, the lower wage is completely irrelevant.
02:13
So now we understand that i'm going to do, let's say, we'll do albert in green and we'll do sid in blue.
02:24
Albert chooses to locate at 10 hours of leisure...