Assume that output (Y) in the economy is given by a Cobb-Douglas production function, y=zK^aN^1-a where z represents total factor productivity, K is the fixed capital stock, and N is labor. Utility is given by U=In(C)+blnL, b> 0 where C is consumption, and I denotes leisure. Government collects taxes by taxing the firm's revenue at a flat rate of t. (After-tax revenue for the firm is (1 – t)y). The government uses the tax to fund its expenditure G-Ty, and consumers do not value G. Assume that initially G=tY=G1 a) Household Problem: Write the equation for the household budget constraint as a function of leisure. Assuming that the household takes the wage (w1) and profits (pie1) as given, draw a graph of the household's optimization problem, with c on vertical axis and I on horizontal, denoting optimal values of consumption and leisure with subscript 1 ( 1 ). Label everything, including intercepts. What is the slope of the budget constraint?

Assume that output (Y) in the economy is given by a Cobb-Douglas production function, y=zK^aN^1-a where z represents total factor productivity, K is the fixed capital stock, and N is labor. Utility is given by U=In(C)+blnL, b> 0 where C is consumption, and I denotes leisure. Government collects taxes by taxing the firm's revenue at a flat rate of t. (After-tax revenue for the firm is (1 – t)y). The government uses the tax to fund its expenditure G-Ty, and consumers do not value G. Assume that initially G=tY=G1 a) Household Problem: Write the equation for the household budget constraint as a function of leisure. Assuming that the household takes the wage (w1) and profits (pie1) as given, draw a graph of the household's optimization problem, with c on vertical axis and I on horizontal, denoting optimal values of consumption and leisure with subscript 1 ( 1 ). Label everything, including intercepts. What is the slope of the budget constraint?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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