Suppose there are two goods, consumption C with price p = 1 and leisure L with price w = 8. The endowments of the two goods are given by C₀= 0 and L₀= 2 4. The utility function is U(C,L)= logC + 2logL.
i)How much labour should be supplied and how much consumption should be chosen?
ii)Using all the information given above (except w = 8), show that the amount of labour supplied will be the same regardless of the wage rate. What must be true about income and substitution effects for this to occur?

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The Answer of Suppose there are two goods, consumption C with price p = 1 and leisure L with price w = 8. The endowments of the two goods are given by C₀= 0 and L₀= 2 4. The utility function is U(C,L)= logC + 2logL. i)How much labour should be supplied and how much consumption should be chosen? ii)Using all the information given above (except w = 8), show that the amount of labour supplied will be the same regardless of the wage rate. What must be true about income and substitution effects for this to occur?

Suppose There Are Two Goods, Consumption C with Price P