2007FALL-HW2-Solutions

2007FALL-HW2-Solutions - 1 Suppose that the representative...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1. Suppose that the representative consumer’s utility function is given by U ( C,l ) = C 1 / 3 l 2 / 3 . Assume that the consumer’s yearly time endowment is h . The consumer’s wage rate is w and he also earns non-wage income π. The government collects a lump-sum tax T from the consumer. (a) Write down the budget constraint of the consumer. (b) Write down the consumer’s optimality condition. (c) Using the consumer’s optimality condition and the budget constraint, solve the consumer’s optimal consumption C , leisure l, and labor supply N S . (d) Assume that h = 5000 hours, wage rate w = $10 per hour, π = $20000, and T = $10000 . What are the consumer’s optimal choices ( C , l , and N S ) for these parameters? Calculate the consumer’s util- ity. (e) Now assume that the wage rate increases to $16 per hour. All other parameters are the same as part (d). Calculate C , l , and N S again....
View Full Document

{[ snackBarMessage ]}

Page1 / 2

2007FALL-HW2-Solutions - 1 Suppose that the representative...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online