Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider an economy with two goods, consumption c and leisure l, and a representative consumer. The consumer is endowed with 24 hours of time

Consider an economy with two goods, consumption c and leisure l, and a representative consumer. The consumer is endowed with 

Consider an economy with two goods, consumption c and leisure l, and a representative consumer. The consumer is endowed with 24 hours of time in a day. A consumer's daily leisure hours are equal tol = 24 h where h is the number of hours a day the consumer chooses to work. The price of consumption p is equal to 1 and the consumer's hourly wage is w. The consumer faces an ad valorem tax on their earnings of T percent. The consumer also receives some exogenous income Y that does not depend on how many hours she works (e.g. an inheritance). The consumer's preferences over consumption and hl+ hours of work can be represented by the utility function U(c, h) = c - 1+ (a) What is this consumer's budget constraint? (b) Solve for the consumer's utility maximizing hours of work h*(w, 1- T, Y) and con- sumption c*(w,1 1, Y). (c) Repeat part (b) for a consumer with the utility function U (c, h) = alog(c)- Blog(h).

Step by Step Solution

3.44 Rating (160 Votes )

There are 3 Steps involved in it

Step: 1

a Budget constraint will be c w1th 24Y where I am taking ... 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

Econometric Analysis

Authors: William H. Greene

5th Edition

130661899, 978-0130661890

More Books

Students also viewed these Economics questions

Question

Cheryl Colby, CFO of Charming Florist Ltd., has created the firm

Answered: 1 week ago

Question

1.11 Identify the major psychological models of abnormal behavior.

Answered: 1 week ago

Question

How Do We Define Abnormal Behavior?

Answered: 1 week ago