This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full 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 from the firm. In addition, she pays T units of the consumption good to the government as a lumpsum 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 + h w ( h l ) +  T c i (2) 1 c = 0 , (3) b w = 0 , (4) w ( h l ) +  T c = 0 . (5) Substituting (4) into (3) and (5), we get c = w b , (6) l = h 1 b +  T w . (7) (b) Suppose that there is an increase in lumpsum taxes, T . Determine the effect of this change on c and l ....
View
Full
Document
 Fall '09
 TASSO
 Economics

Click to edit the document details