2.2 The worker's preferences and budget constraints Utility function: U=U(C, L) C, consumption of goods. L, consumption of leisure. U=CL Indifference curve Marginal utility Marginal rate of substitution in consumption Time constraints T=L+h L: leisure time. h: work time Budget constraint: C=wh+V V: non-labor income C=(WT+V)-wL budget line the boundary of the workers opportunity set Slope -w10 2.2 The worker’s preferences and budget constraints Utility function: U=U(C, L) C, consumption of goods. L, consumption of leisure. U=C*L Indifference curve Marginal utility Marginal rate of substitution in consumption Time constraints: T=L+h L: leisure time; h: work time Budget constraint: C=wh+V V: non-labor income C=(wT+V)-wL budget line the boundary of the worker’s opportunity set Slope -w