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Utility function over consumption and leisure. U(C,L) = C 1/3 L 2/3 Total hours: 40 Labour hours: N s =H-L Government expenditure = 30 Lumpsum
Utility function over consumption and leisure.
U(C,L) = C1/3L2/3
Total hours: 40
Labour hours: Ns=H-L
Government expenditure = 30
Lumpsum tax = T
Production function: Y =zNd
Total factor productivity z=3
the representative consumer maximizes utility, the representative firm maximizes profit and the gov. balances budget. Suppose there is a decrease in the total factor of productivity, z=2
what is the income effect of this change on the labour supply?
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