Question:
Worker 1 with non-labour income Y is facing a wage offer, w and a utility function defined over consumption and leisure
U (c,l) = lnC + 4lnl
a) When comparing worker 1 with worker 2 whose utility function is described by U(c,l) = cl ,
which worker places a higher value on labour market work?
b) Assuming the worker participates in the labour market. Derive the worker’s compensated labour supply function and the compensated labour supply elasticity with respect to wage as a function of utility level and wage
c) Derive worker’s uncompensated labour supply function (for labour market participants and non-participants) and the uncompensated labour supply elasticity (for labour market participants) with respect to wage as a function of non-labour income and wage