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) + Twhere w, h, l, 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 byY = C + G = A(h – 1)'/2%3DAssume that h = 1, A = 1 and that the government has a balanced budget.(b) Plot the government tax revenue for 0

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) (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.

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) (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.

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Chapter1: Making Economics Decisions

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

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) + T
where w, h, l, 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
%3D
Assume that h = 1, A = 1 and that the government has a balanced budget.
(b) Plot the government tax revenue for 0<t< 1, and for a required revenue of 0.25,
show that there are two tax rates that achieve this. What are they?

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