. Consider an economy similar to the one studied in the section on laborincome taxation.• There are C consumers, each with preferences given byU (q,l,m) = q + m.7220As before, consumers have no exogenous endowment of wealth or endow-ment of good q.• Suppose also that there is a single competitive firm (i.e., it takes pricesas given), which uses labor to produce the good q using the productionfunction F(1) 27/0.5=• Finally, suppose that the consumers pay a fraction 7 of their labor incomein taxes, and that all government revenue is returned to consumers usingan identical lum-sum transfer.• QUESTION: What is the formula for the equlibrium wage?

This problem analyzes a general equilibrium model with labor income taxation. General equilibrium…

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Chapter1: Making Economics Decisions

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Question

. Consider an economy similar to the one studied in the section on labor
income taxation.
• There are C consumers, each with preferences given by
U (q,l,m) = q + m.
72
20
As before, consumers have no exogenous endowment of wealth or endow-
ment of good q.
• Suppose also that there is a single competitive firm (i.e., it takes prices
as given), which uses labor to produce the good q using the production
function F(1) 27/0.5
=
• Finally, suppose that the consumers pay a fraction 7 of their labor income
in taxes, and that all government revenue is returned to consumers using
an identical lum-sum transfer.
• QUESTION: What is the formula for the equlibrium wage?

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