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1 300 Consider a representative consumer whose utility function is given by U(C,L) = C + In(L), where C is private consumption and L is
1 300 Consider a representative consumer whose utility function is given by U(C,L) = C + In(L), where C is private consumption and L is leisure. The consumer receives wage rate wold = 9 for every hour worked, time available is 100 hours and lump-sum taxes equal 150. There are no additional sources of income. The consumer's budget constraint is thus: C= -9xL+ 750, where xis a multiplication sign. Your cool prof calculated the optimal bundle and labeled it with the subscript "old" to denote the bundle that corresponds to the initial (old) wage rate. The optimal consumption is Cold = 450 and leisure is Lold = 33.33. = Suppose the wage rate increases to Wnew = 11. The prof calculated the new optimal bundle: Cnew = 650 and Lnew = 27.27. = Decompose the change in the optimal bundle from (Cold: Lold) to (Cnew. -new) into income and substitution effects. To answer this question, type in your numerical answers in the boxes provided in parts a) and b) below. Round numbers to 2 decimal places. Insert minus signs where appropriate. Report changes in consumption and changes in leisure. SE SE Let C denote consumption at the substitution effect bundle. Let L denote leisure at the substitution effect bundle. In response to the wage rate increasing from Wold = 9 to Wnew = 11, = a). the substitution effect implies a change in consumption (C SE - Cold ) equal to SE and a change in leisure (L - Lold ) equal to b). the income effect implies a change in consumption (Cnew -CSF) equal to :) SE and a change in leisure (Lnew -L -) equal to 1 300 Consider a representative consumer whose utility function is given by U(C,L) = C + In(L), where C is private consumption and L is leisure. The consumer receives wage rate wold = 9 for every hour worked, time available is 100 hours and lump-sum taxes equal 150. There are no additional sources of income. The consumer's budget constraint is thus: C= -9xL+ 750, where xis a multiplication sign. Your cool prof calculated the optimal bundle and labeled it with the subscript "old" to denote the bundle that corresponds to the initial (old) wage rate. The optimal consumption is Cold = 450 and leisure is Lold = 33.33. = Suppose the wage rate increases to Wnew = 11. The prof calculated the new optimal bundle: Cnew = 650 and Lnew = 27.27. = Decompose the change in the optimal bundle from (Cold: Lold) to (Cnew. -new) into income and substitution effects. To answer this question, type in your numerical answers in the boxes provided in parts a) and b) below. Round numbers to 2 decimal places. Insert minus signs where appropriate. Report changes in consumption and changes in leisure. SE SE Let C denote consumption at the substitution effect bundle. Let L denote leisure at the substitution effect bundle. In response to the wage rate increasing from Wold = 9 to Wnew = 11, = a). the substitution effect implies a change in consumption (C SE - Cold ) equal to SE and a change in leisure (L - Lold ) equal to b). the income effect implies a change in consumption (Cnew -CSF) equal to :) SE and a change in leisure (Lnew -L -) equal to
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