Question1_2400_Final_Fall08_Sol - York University...

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 DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: York University Department of Economics Professor Ahmet Akyol AS/ECON 2400 - INTERMEDIATE MACROECONOMIC THEORY I A Practice Question 1.-35 points- Consider the representative consumer with preferences over the consump- tion good, c , and leisure, l described by the utility function U ( c,l ) = ln c + bl (1) where b > 0. She faces a wage rate, w , in the labor market. She also receives dividend income π from the firm. In addition, she pays T units of the consumption good to the government as a lump-sum tax. (a) Set up the Lagrangian and solve for the demand of the consumption good, c , and the leisure, l . L = max ln c + bl + λ h w ( h- l ) + π- T- c i (2) 1 c- λ = 0 , (3) b- λw = 0 , (4) w ( h- l ) + π- T- c = 0 . (5) Substituting (4) into (3) and (5), we get c = w b , (6) l = h- 1 b + π- T w . (7) (b) Suppose that there is an increase in lump-sum taxes, T . Determine the effect of this change on c and l ....
View Full Document

Page1 / 3

Question1_2400_Final_Fall08_Sol - York University...

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