Budget constraint with endowment

⇒ Whether the change in price leads to a utility increase or decrease depends on where your original optimum is; i.e.

  • Whether you are a net seller or net buyer of the good (optimum is left/right of endowment)
  • Which way the price ratio changes

Leisure—Consumption Utility

Same equation as above, but with Consumption-Positive Leisure tradeoff


  • Labor quantities:
    • : wage (=price of leisure)
    • : quantity of leisure, in unit hours
    • : total time endowment, in unit hours
  • Consumption quantities:
    • : price of composite consumption good
    • : quantity of composite consumption good
    • : consumption endowment


therefore we can plot the Ordinary Demand of Leisure (=Labor Supply)

  • Ordinary Demand of Consumption
  • Ordinary Demand of Leisure


Percentage tax on wage (=price of leisure) ⇒ removing from the wage

  • Tax Revenue
  • Laffer Curve