The representative consumer has the following utility function: U(c, I) = In c + In I where c is the consumption good, and I is the leisure hours. She has h hours of time available which she can allocate between work and leisure. For each hour of work, she earns w units of consumption good. She also earns Tt as dividend (profit) income which is measured in consumption goods. The government collects revenues using a consumption tax; in particular, the representative consumer payst units of goods to the government for each unit of consumption good she buys. Note that there is no lump-sum tax. (a) Determine the consumer's budget constraint. (b) Solve for the c and I that maximize the utility of the consumer. (c) Suppose that the tax ratet increases. What is the impact of this increase in the tax rate, t, on the consumer's choice for c and l? What is the impact of this on the labour hours of the consumer?

The representative consumer has the following utility function: U(c, I) = In c + In I where c is the consumption good, and I is the leisure hours. She has h hours of time available which she can allocate between work and leisure. For each hour of work, she earns w units of consumption good. She also earns Tt as dividend (profit) income which is measured in consumption goods. The government collects revenues using a consumption tax; in particular, the representative consumer payst units of goods to the government for each unit of consumption good she buys. Note that there is no lump-sum tax. (a) Determine the consumer's budget constraint. (b) Solve for the c and I that maximize the utility of the consumer. (c) Suppose that the tax ratet increases. What is the impact of this increase in the tax rate, t, on the consumer's choice for c and l? What is the impact of this on the labour hours of the consumer?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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