Please explain to me what every different variable means in this question 1) In period t, a parental household (indexed by i) equipped with human capital hearns a labour income of whi, where w > 0 represents a constant wage rate. Thishousehold derives utility out of own consumption , the number of children nand their level of human capital h+1 Education is provided by teachers who areequipped with the economy's average level of human capital hf. Human capital perchild evolves from one period to another according toh₁+1 = (e+ē)" (hi)*(h?) ¹—7,0 0 is a constant parameter and e represents the level of education perchild.The households' utility function is specified asU₂ = In(c) + [In(ni) + 3 ln(hi+1)]with 7,3 > 0.Raising one child to adulthood requires a share of 0 << 1 units of time. Moreover,education is subsidised at a rate 0 ≤ se < 1, such that education costs per childamount to whe(1 - se).a. Solve household i's optimisation problem and explain the economic rationale ofyour results.b. Let's define a variable a capturing the households' relative human capital en-dowment with respect to the economy's average, such thathiShow that relative human capital of household i, evolves according toĐỀ+= = 8)² )" . (²) ²zat (1-se)ē)2- - (1 - se)ē(3)(4)c. Suppose the +1-locus (4) intercepts from above at z = 1 with the 45-degreeline. What does this information imply for the evolution of inequality? Explainthe impact of the education subsidy on the +1-locus with an appropriatediagram.Remark: No derivations are required here. Just provide a decent rationaleand do as asked!

Utility FunctionBudget ConstraintHousehold Income - Cost of educating children =

In period t, a parental household (indexed by 2) equipped with human capi earns a labour income of whi, where w > 0 represents a constant wage rate_ household derives utility out of own consumption , the number of childr and their level of human capital h+1 Education is provided by teachers w equipped with the economy's average level of human capital h. Human capit child evolves from one period to another according to ht+1=(e+e)" (hi)* (h²)¹, 0 <1,7 <1 where e > 0 is a constant parameter and e represents the level of educatio

In period t, a parental household (indexed by 2) equipped with human capi earns a labour income of whi, where w > 0 represents a constant wage rate_ household derives utility out of own consumption , the number of childr and their level of human capital h+1 Education is provided by teachers w equipped with the economy's average level of human capital h. Human capit child evolves from one period to another according to ht+1=(e+e)" (hi)* (h²)¹, 0 <1,7 <1 where e > 0 is a constant parameter and e represents the level of educatio

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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