39.Using the model of public good, suppose that output is produced, as in the simplified model with proportional taxation, with labour andz = 1.However, there is lump-sum taxation, and the PPF is given byY=h-l-G.

Now the consumer has preferences over three goods: private goodsC, public goodsG, and leisurel.

Assume thatCandlare perfect complements for the consumer, that is, the consumer always wants to consumeCandlin fixed proportions, withC=dlandd>0.

b) The effects of an increase inGon consumption and leisure are as follow:

(Explain yourresults)

a)

consumption increases and leisure decrease: a pure income effect.

b)

consumption and leisure both decrease: a pure substitution effect.

c)

consumption increases and leisure decrease: a pure substitution effect.

d)

None of the above