Dunc Labour Supply Lab

1 · STANDARD LABOUR SUPPLY

How much of Dunc's available time will he actually work?

HOURLY WAGE w

DAILY GUARANTEE P

INCOME TAX t

Choose Dunc's preferences

This changes how strongly Dunc values extra consumption relative to non-work time. Same wage. Different preferences. Different labour-supply choice.

T=16 is Dunc's daily available time after sleep; it is divided between paid work and non-work time.

Exact optimum

Non-work L*

Consumption C*

Look at the yellow point

Interior solution: the blue indifference curve is constructed analytically through E*, where its MRS equals the slope of the black budget line. It should visibly kiss, not cross, the budget line at the yellow point.