All individuals have the same utility function over consumption, C, and leisure, L, given by U = C1/3L2/3, Denote the wage rate by w. The total time available for labour and leisure is equal to 12. The price of consumption is PC=1. Denote the amount of labour supplied as N. 1)Find the Labour supply function. 2)The government introduces a tax t=0.2 on wage, such that the after-tax wage is (1-t)w. How much tax revenue does the government collect on everyone? What is the effect on labour supply? 3)The government chooses instead to collect a fixed lump-sum T from everyone. What is the effect on labour supply?
All individuals have the same utility function over consumption, C, and leisure, L, given by U = C1/3L2/3, Denote the wage rate by w. The total time available for labour and leisure is equal to 12. The price of consumption is PC=1. Denote the amount of labour supplied as N. 1)Find the Labour supply function. 2)The government introduces a tax t=0.2 on wage, such that the after-tax wage is (1-t)w. How much tax revenue does the government collect on everyone? What is the effect on labour supply? 3)The government chooses instead to collect a fixed lump-sum T from everyone. What is the effect on labour supply?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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All individuals have the same utility function over consumption, C, and leisure, L, given by U = C1/3L2/3, Denote the wage rate by w. The total time available for labour and leisure is equal to 12. The price of consumption is PC=1. Denote the amount of labour supplied as N.
1)Find the Labour supply function.
2)The government introduces a tax t=0.2 on wage, such that the after-tax wage is (1-t)w. How much tax revenue does the government collect on everyone? What is the effect on labour supply?
3)The government chooses instead to collect a fixed lump-sum T from everyone. What is the effect on labour supply?
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