May 18, 2004
Why do people save money?
The intertemporal substitution diagram shows the basic story about how people decide to save.
We can elaborate on this idea by introducing a production possibility frontier:
Homework
HW #1 Due 5/18
1. Draw supply and demand.
2. Where does the demand curve come from?
3. Where does the supply curve come from?
HW #2 Due 5/19
What happens to labor supply if the government enacts an income tax? Assume that the tax is a simple percentage of income. Hint: think about the labor-leisure tradeoff.
P & Q
Why is Q on the horizontal axis of supply and demand?
If P were on the horizontal axis, the average cost curve would not be a function. This would make the Theory of the Firm more difficult.
The Classical Model -I
Unemployment in the Classical Model should be eliminated by an adjustment of the real wage rate to reach equilibrium.
