Consumption-Leisure Model Essay Plan

Introduction:

- Define what a budget constraint is and how its applied to consumption leisure model: two
goods of leisure and income which people can divide time between
- Define what an indifference curve is and how it can be applied to the consumption leisure
model

Main Body:

- Say why the indifference curve and budget constraint is shaped like this for the
consumption-leisure model; analyse the axioms
- Draw the Diagram showing the effect of an increase in wages on the consumption leisure
model;
- Analyse the diagram showing the reduction in hours of leisure taken and increase in hours
worked
- Show the increase in income earned per week as a result of the increased wages.
- Explain why the labour market supply curve is backwards bending by deriving using two
diagrams from consumption leisure model and labour market
- Diagrams for special cases of unemployment benefits and income tax rates (changed slope
of budget constraint due to different tax brackets)
- Compare the hours worked without income tax rates and unemployment benefits to after
these are introduced
- Show difference in which effect dominates on labour supply curve; bottom half the
substitution effect dominates and in top half the income effect dominates

Conclusion:

- Overall effect on the consumption leisure model of the change in wages/use of
unemployment benefits/income tax rates