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QUESTION 1 An agent has preferences defined over a consumption good and leisure. His utility functionis U= (c -y )2 I, where c is the
QUESTION 1 An agent has preferences defined over a consumption good and leisure. His utility functionis U= (c -y )2 I, where c is the amount of consumption good he consumes and | is the amount of leisure time. The parameter y > 0 is a minimum consumption requirement. The agent has an endowment of h units of time, which he divides between leisure (1) and work (n): | + n = h. The agent receives an after-tax wage of q =w (1- 1), where w is the agent's real wage (wage measured in terms of the consumption good, and 1 is a marginal income tax rate (e.g., 1 = .15). The agent's consumption c is constrained by his earnings, c
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