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 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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F54efc278-be7d-4819-99e5-8119984e0612%2Fb0308c76-02fd-4cf3-b642-63d579458e29%2F1aq8pnj_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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?
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