Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Can you write down the steps, and please help me to solve these two questions. Thanks a lot! Question 3 Another commonly used concept in

Can you write down the steps, and please help me to solve these two questions. Thanks a lot!

image text in transcribed
Question 3 Another commonly used concept in macroeconomics is the elasticity of substitution which measures how easy it is to substitute between two goods. Given the formula for the elasticity of substitution: d In MRS where MRS is the marginal rate of substitution. Use the utility function in question 3 to worlr out the elasticity of substitution. Question 4 Assume the following utility function, dened over consumption, c and leisure1 I and to corresponding budget constraint: (1 + me: + [1 :,.)w1={1 cow {1} Maximise the utility function subject to the budget constraint. {2} Derive the optimality condition that equates the MRS between consumption and leisure to price ratio. {3} How does optimal choice between consumption and leisure change when there are changes in the tax rate on consumption and the tax rate on labour. {4} Substitute the optimality condition into the budget constraint to worlr out the equilibrium level of l. [f h: = tn = 111,0 = 1.5 and WfP = 1, what value does or need to be for l = W3

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Political Economy

Authors: Thomas Oatley

6th Edition

1138490741, 9781138490741

More Books

Students also viewed these Economics questions

Question

=+b) Form the F-statistic by dividing the two mean squares.

Answered: 1 week ago