Full price activity changes with hourly wage rate and the different Assignment

Full price activity changes with hourly wage rate and the different between income and substitution effects - Assignment Example The income constraint requires that the net household income should equal expenses on market items, where p is the price of household output, w is the hourly income, r is the price of variable inputs, and s is the price of market items. This furthermore will tell us about the bargaining power in household production unit. Thus: P ( YÂ ­C ) – w Tw – rV = sM We obtain full income constraint by such an expression after a little change: wT = Æ ©Ni=l FCi Where FCi= total cost of a good and FCi = pxi + wti where p= price index of xi, w= wage rate, xi= summed inputs in production and consumption of an item, while t is time spent working. In the same context, individuals will always minimize the total cost of consuming a commodity. This way we can understand the decline in fertility with increased income as well as why many people ignore coupons in grocery firms. We are also able to understand the cause of decrease expenditure on children as they become endowed. (Tran 2005). The fig.1 and 2. Show graphical examples of how the above theory can be represented. The sketch 2. Illustrates a substitution effect concerning wage rate. A rise in wage rate results in increased relative price of time and also the households substitute purchased items for time in the making and usage of a given level of each item.