Suppose that Priya’s preferences for leisure (L) and other goods (Y) are given by: U(L,Y)=&rad
Question: Suppose that Priya’s preferences for leisure (L) and other goods (Y) are given by:
\[U\left( L,Y \right)=\sqrt{L}+\sqrt{Y}\]Also, suppose that Py = $1. Derive the equation for Priya’s supply of labor as a function of wages. Is Priya’s supply of labor increasing in wages, decreasing in wages, or backward bending? (Hint: First derive the labor supply function from the optimality conditions as usual. This is the H(w) function. Then check whether H(w) is increasing or decreasing in w. Or it can also be increasing for some values of w, and decreasing for other values, in which case it will be backward bending.)
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Deliverables: Word Document
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