Illustrate general equilibrium and the Laffer curve in the context of a repre- sentative consumer with a utility function: U(C, 1) = ln(C) + In(1) that he or she maximises subject to a constraint: C = w(1 – t) (hl) + π where w, h, l, C, t and π are wages, hours of time available, leisure, consumption, tax rate, and dividend income. The production function for this economy is given by Y = C +G=A(h − 1)¹/² Assume that h = 1, A = 1 and that the government has a balanced budget. (c) Either analytically or from your Laffer curve plot, find the value of t that maximizes tax revenue.
Illustrate general equilibrium and the Laffer curve in the context of a repre- sentative consumer with a utility function: U(C, 1) = ln(C) + In(1) that he or she maximises subject to a constraint: C = w(1 – t) (hl) + π where w, h, l, C, t and π are wages, hours of time available, leisure, consumption, tax rate, and dividend income. The production function for this economy is given by Y = C +G=A(h − 1)¹/² Assume that h = 1, A = 1 and that the government has a balanced budget. (c) Either analytically or from your Laffer curve plot, find the value of t that maximizes tax revenue.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![Illustrate general equilibrium and the Laffer curve in the context of a repre-
sentative consumer with a utility function:
U(C,1) = In(C) + In(1)
that he or she maximises subject to a constraint:
C = w(1 – t)(h – 1) + a
where
w, h,1, C, t and T are wages, hours of time available, leisure, consumption, tax rate,
and dividend income. The production function for this economy is given by
Y = C+G = A(h – 1)!/2
Assume that h = 1, A = 1 and that the government has a balanced budget.
(c) Either analytically or from your Laffer curve plot, find the value of t that maximizes
tax revenue.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F887eb69d-bfff-45c4-a97e-8f0dacb70ab7%2Fc6f872b5-e619-4ef8-b37f-9da8da0b1379%2Fkb6ebro_processed.png&w=3840&q=75)
Transcribed Image Text:Illustrate general equilibrium and the Laffer curve in the context of a repre-
sentative consumer with a utility function:
U(C,1) = In(C) + In(1)
that he or she maximises subject to a constraint:
C = w(1 – t)(h – 1) + a
where
w, h,1, C, t and T are wages, hours of time available, leisure, consumption, tax rate,
and dividend income. The production function for this economy is given by
Y = C+G = A(h – 1)!/2
Assume that h = 1, A = 1 and that the government has a balanced budget.
(c) Either analytically or from your Laffer curve plot, find the value of t that maximizes
tax revenue.
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