ZuoTi.Pro
Question

Problem 3: Inelastic labor supply A representative consumer has preferences described by the utility function: u(c)...

Problem 3: Inelastic labor supply A representative consumer has preferences described by the utility function: u(c) = ln c, where c denotes consumption. Assume that the total number of hours available to the worker are h¯ = 1. The consumer/worker receives the wage, w, for her labor services. A. Obtain the labor supply curve. B. Introduce a proportional tax on labor income, τw. Obtain the new labor supply curve. C. Introduce a proportional tax on consumption, τc. Obtain the new labor supply curve

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

The consumer's problem is:

Since the consumer only cares about consumption and there is a trade off between consumption and leisure in the budget equation, the consumer would simply not 'consume' any leisure and would only 'consume' consumption. Therefore, labor supply is zero.

After a proportionate tax on income, the new budget equation is:

Even in this case, labor supply will be zero as the consumer still doesn't care about leisure and there is a trade off between consumption and leisure in the budget equation.

After a proportionate tax on consumption, the new budget equation is:

Similarly in this case as well, labor supply is zero as the consumer doesn't care about leisure.

0 0
Add a comment
Know the answer?
Add Answer to:
Problem 3: Inelastic labor supply A representative consumer has preferences described by the utility function: u(c)...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • A representative consumer has preferences described by the utility function: uc, 1) = ln(c- c) +...

    A representative consumer has preferences described by the utility function: uc, 1) = ln(c- c) + Inl where c denotes consumption and I leisure. The parameter o captures the level of subsistence consumption. Assume that the total number of hours available to the worker are h = 1. The consumer/worker receives the wage, w, for her labor services. A. Obtain the labor supply curve. B. Introduce a proportional tax on labor income, T. Obtain the new labor supply curve. C....

  • Consider an economy in which the representative consumer preferences are described by U(C, l) = 0.9...

    Consider an economy in which the representative consumer preferences are described by U(C, l) = 0.9 ln(C) + 0.1 ln(l). The total number of hours available to the representative consumer is h = 1, and the market real wage is w. The representative firm produces the final consumption good using the technology function Y = zN where N is the labour, and z = 2. Assume the government sets the level of its spending to G = 0.75 which has...

  • Consider a representative consumer who has preferences over an aggregate consumption good c and leisure l....

    Consider a representative consumer who has preferences over an aggregate consumption good c and leisure l. Her preferences are described by the utility function: U(c,l) = ln(c) + ln(l) The consumer has a time endowment of h hours which can be used to work at the market or enjoyed as leisure. The real wage rate is w per hour. The worker pays a proportional wage tax of rate t, so the worker’s after-tax wage is (1−t)w. The consumer also has...

  • 3. Consider a representative consumer who has preferences over an aggregate consumption good e and leisure....

    3. Consider a representative consumer who has preferences over an aggregate consumption good e and leisure. Her preferences are described by the uility function: U(c,l) In(e) +In(l) The consumer has a time endowment of h hours which can be used to work at the market or enjoyed as leisure. The real wage rate is w per hour. The worker pays a proportional wage tax of rate t, so the worker's after-tax wage is (1 t). The consumer also has dividend...

  • Problem 3 - Labor Market & Taxes PROBLEM 3: LABOR MARKET AND TAXES (20 POINTS) Suppose...

    Problem 3 - Labor Market & Taxes PROBLEM 3: LABOR MARKET AND TAXES (20 POINTS) Suppose a worker has preferences over consumption and leisure that can be repre- sented by the following utility function: U = ln (C) + In (1) There are 16 hours per day available for leisure (1) and labor (L) (the remaining 8 hours are for sleeping). The hourly wage is w, and assume that the price of each unit of consumption is $1. The only...

  • Assume the representative consumer lives in two periods and his preferences can be described by U(c,...

    Assume the representative consumer lives in two periods and his preferences can be described by U(c, c' ) = c ^(1/2) + β(c') ^(1/2) , where c is the current consumption, c' is next period consumption, and β = 0.95. Let’s assume that the consumer can borrow or lend at the interest rate r = 10%. The consumer receives an income y = 100 in the current period and y' = 110 in the next period. The government wants to...

  • Problem 5 Assume that a worker has the Utility Function U(C,L) C "C" refers to consumption in dollars and &...

    Problem 5 Assume that a worker has the Utility Function U(C,L) C "C" refers to consumption in dollars and "L" to hours of leisure in a day. The worker has an offered wage of $10 per hour, 20 hours available for leisure or work per day, and $30 dollars a day from non- labour income. o 8.60 L (a) Find the budget constraint equation of the individual. (b) Find the optimal choice for the individual in terms of units of...

  • Problem 2 A consumer has the following preferences regarding consumption and leisure time: ?(?, ?) =...

    Problem 2 A consumer has the following preferences regarding consumption and leisure time: ?(?, ?) = ? ∙ (24 − ?) Where ? is the quantity of an aggregated consumption good and ? are the supplied labour hours (working in a job) per day, and consequently, 24 − ? is the leisure time ?. The budget available for daily consumption is the sum of labour income and other fixed (daily) income with ? = price of the aggregated consumption good...

  • 5. A consumer has the utility function U= In C+In (24-N), where C is consump- tion...

    5. A consumer has the utility function U= In C+In (24-N), where C is consump- tion and Nis labor supply. Her budget constraint is pC MwN, where p is the price of the consumption good, w the wage rate, and M the consumer's non- wage income. (a) Formulate the problem of utility maximization subject to the budget con- straint, and derive the first-order conditions, using the Lagrange multi- plier approach and ignoring the nonnegativity constraints. 80 1 Static optimization Find...

  • Problem #1: Optimal labor supply Clark gains utility from consumption c and leisure l and his...

    Problem #1: Optimal labor supply Clark gains utility from consumption c and leisure l and his preferences for consumption and leisure can be expressed as U(c, l) = 2(√ c)(l). This utility function implies that Clark’s marginal utility of leisure is 2√ c and his marginal utility of consumption is l √ c . He has 16 hours per day to allocate between leisure (l) and work (h). His hourly wage is $12 after taxes. Clark also receives a daily...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT