Suppose that our representative consumer lives for one period, earns 5 coconuts an hour (that is w = 5), enjoys non-earn
Posted: Wed Apr 27, 2022 12:15 pm
Suppose that our representative consumer lives for one period,
earns 5 coconuts an hour (that is w = 5), enjoys non-earned income
of 8 coconuts (that is π = 8), pays lump sum tax of 7 coconuts
(that is T = 7), and has the following preferences over consumption
and leisure U(c, l) = min(4c, 3l). Also, assume that ℎ = 16, where
h is total time available to our consumer. • First, determine the
consumer’s optimal choice of consumption and leisure and show
optimal consumption bundle, indifference curves and budget
constraint in a diagram with the consumption on the vertical axis
and leisure on the horizontal axes). • Second, assume that the lump
sum tax is increased to 9 coconuts. Illustrate this new budget
constraint in a separate diagram.
earns 5 coconuts an hour (that is w = 5), enjoys non-earned income
of 8 coconuts (that is π = 8), pays lump sum tax of 7 coconuts
(that is T = 7), and has the following preferences over consumption
and leisure U(c, l) = min(4c, 3l). Also, assume that ℎ = 16, where
h is total time available to our consumer. • First, determine the
consumer’s optimal choice of consumption and leisure and show
optimal consumption bundle, indifference curves and budget
constraint in a diagram with the consumption on the vertical axis
and leisure on the horizontal axes). • Second, assume that the lump
sum tax is increased to 9 coconuts. Illustrate this new budget
constraint in a separate diagram.