Exercises Exercise 2.1(Easy) An agent cares about consumption and leisure.

Specifically, the agent’s

preferences are: U = ln(c) + ln(l), where c is the agent’s consumption, and l is the number of hours the
age Appendix: Calculus Notation 19 spends per day on leisure. When the agent isn’t enjoying leisure
time, the agent works, either for herself or for someone else. If she works ns hours for herself, then she
produces y = 4n0:5 s units of consumption. For each hour that she works for someone else, she gets paid
a competitive wage w, in units of consumption. Write out the agent’s optimization problem. Exercise 2.2
(Moderate) Suppose Crusoe’s preferences are given by: u(c; l) = c (1 l) 1 , for some between zero and
one. His technology is: y = f (l) = Al
, just like before. Solve for Crusoe’s optimal choices of consumption c and labor l. (You can use either
substitution or a Lagrangean, but the former is easier in this sort of problem

Basics of Supply and Demand Lecture Notes 1. A market is nothing more or less than the locus of
exchange; it is not necessarily a place, but simply buyers and sellers coming together for transactions. 2.
The law of demand states that as price increases (decreases) consumers will purchase less (more) of the
specific commodity. a. The demand schedule (demand curve) reflects the law of demand it is a
downward sloping function and is a schedule of the quantity demanded at each and every price. As price
falls from P1 to P2 the quantity demanded increases from Q1 to Q2. This is a negative relation between
price and quantity, hence the negative slope of the demand schedule; as predicted by the law of
demand.