Answered: Consider a one period model in which a…

Consider a one period model in which a representative agent maximises the utility function: U (c, 1) = Inc + 5lnl subject to the budget constraints: c = (1 t)w(1-1) + v

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Solve for equilibrium consumption and labour choices.
Derive the equation that determines how much revenue the government will receive for a given rate of tax t. What is this relationship called?

Consider a one period model in which a representative agent maximises the utility function:
U(c, l) Inc + 5lnl
=
subject to the budget constraints:
c = (1-t)w(1-1) + v
where c is consumption and is the amount of leisure, they enjoy out of a total of one unit of
time available, t is the tax on wage earnings which pays for v in government transfer payments.

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