can you please solve this question for me 7. Consider a representative consumer that has preferences over bundles of consumptiongoods c, and leisure l. The consumer's preferences satisfy the properties: more is pre-ferred to less; preference for diversity; normality. The consumer is endowed with anendowment of total hours h. Let the consumer's real wage per hour worked in terms ofthe consumption good be w. Real firm profits, which are distributed to consumers asdividends, are denoted II. The real lump-sum taxes paid by consumers to the governmentare T. Assume that II > T.(a) Derive the consumer's budget constraint and draw it on a carefully labeled dia-gram. Show the optimal choice for the representative consumer. Explain what thecondition that holds at the optimum is.(b) Suppose now that in addition the government imposes a proportional income taxT < 1 on wage income. What is the effect of the proportional income tax rate on theconsumer's choices of consumption and leisure, as well as on his welfare? Explainthe results in terms of substitution and income effects.(c) Suppose now that in (a) consumption and leisure are perfect complements and theconsumer always wants to consume two units of consumption goods for every unitof leisure. Show the consumer's optimum on a graph. Derive algebraically solutionsfor c and at the optimum and explain how they depend on lump-sum taxes.

Consumer has preference over : Consumption(c) & Leisure (l ) Total Number of hours = h Real…

Consider a representative consumer that has preferences over bundles of consumption goods c, and leisure l. The consumer's preferences satisfy the properties: more is pre- ferred to less; preference for diversity; normality. The consumer is endowed with an endowment of total hours h. Let the consumer's real wage per hour worked in terms of the consumption good be w. Real firm profits, which are distributed to consumers as dividends, are denoted II. The real lump-sum taxes paid by consumers to the government are T. Assume that II > T.

Consider a representative consumer that has preferences over bundles of consumption goods c, and leisure l. The consumer's preferences satisfy the properties: more is pre- ferred to less; preference for diversity; normality. The consumer is endowed with an endowment of total hours h. Let the consumer's real wage per hour worked in terms of the consumption good be w. Real firm profits, which are distributed to consumers as dividends, are denoted II. The real lump-sum taxes paid by consumers to the government are T. Assume that II > T.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 2SQP

See similar textbooks

Similar questions

7. Consider a generic consumption/leisure choice. How will the follow ing events/policies affect either the consumer's choice of hours worked and labor supply, if at all? Be specific as possible about income and substitution effects and if there are multiple cases, consider them all (a) A raise in the wage rate (b) A labor income tax on all income. (c) A labor income tax on all labor income beyond the first 20 hours.
For this question, assume that indifference curves are strictly convex, consumption andleisure are normal goods, and the optimal amounts of consumption, leisure, and labor arealways positive. A wage increase ______. (SE = substitution effect; IE = income effect)(a) increases labor supply via the SE and decreases labor supply via the IE(b) decreases labor supply via the SE and decreases labor supply via the IE(c) increases labor supply via the SE and increases labor supply via the IE(d) decreases labor supply via the SE and increases labor supply via the IE(e) Can’t tell without knowing the utility function
. An individual's utility function is given by u = 1000 x, + 450 x. + 5x, x. - 2x-x where x, is the amount of leisure measured in hours per week and x,is income earned measured in cedis per week. Det er mine the value of the marginal utilities, when x, = 138 and x= 500. Hence est imate the change in utility if the individual works for an extra hour, which increa ses earned income by GH¢ 15 per week. Does the law of diminishing ut ility hold for this function? %3D
8. Suppose both the consumption good and leisure are normal goods any graphs what will happen to the household's choice if there is (a) an increase in dividend income ; (b) an increase in wage w. without bois 1-on0 9TI laicuro in inferior Rengat
A person is a gig worker and can choose whether and how much he works each day. When his hourly wage is $20 per hour, he works enough to earn $120 per day. His situation is represented by the blue budget line where he starts at Point A. At point A, the value for X is , the value for Z is , and he is working hours and consuming hours of leisure. Income/Consumption w IC 16 24 Leisure Today (hours) w... - O).......... O
5. Suppose that the representative consumer's pref- erences change, in that his or her marginal rate of substitution of leisure for consumption in- creases for any quantities of consumption and leisure. (a) Explain what this change in preferences means in more intuitive language. (b) What effects does this have on the equilib- rium real wage, hours worked, output, and consumption? (c) Do you think that preference shifts like this might explain why economies experience recessions (periods when output is low)? Explain why or why not, with reference to the key business cycle facts in Chapter 3.
Assume that a person earns $10 per hour and her non-labor income increases from $100 to$200. She also has 110 hours a week to decide either to work or leisure. a. Draw a budget constraint of this person.b. Draw an indifference curve to show the income and substitution effect of change innon-labor income. HINT: you can draw two separate graphs to show the effect ofsubstitution and income effects.
1.Explain how a firm uses resources price and value data to determine the appropriate combination of capital and labor resources to use in order to maximize profits. 2.how does this change when the firm want to produce a specific quantity of product with the least cost combination of resources? 3. if a software firm estimates that the MP of labor is 3 apps per month and the price is labor is $1100 per month, while the MP of capital is 5apps per month and its price is $2000, should the firm hire more labor and decrease its capital use or increase its use of capital and use fewer labor resources?
7. An individual's utility function is given by U =1000x, +450x, +5 x,x, -2x - x where x, is the amount of leisure measured in hours per week and x, is income earned measured in cedis per week. Determine the value of the marginal utilities, when x, = 138 and x, = 500. Hence estimate the change in utility if the individual works for an extra hour, which increases earned income by GH¢15 per week. Does the law of diminishing utility hold for this function?
b. If in a given year (year X) the panty ratio stood at 0.60, it would mean that O prices paid by farmers in year X rose by 60 percent over the prices pald in the base penod. O prices recelved in the base period could buy 60 percent as much as prices received in year X O prices received in year X rose by G0 percent over the prices received in the base period O'prices received in year X could buy 60 percent as much as prices received in the base period, c Suppose the parity ratio initially stood at 0.60, and after several years, the prices received by farmers tripled while the prices they paid doubled. The parity ratio will be O0.98 O 0 82. 0.90 O 074.
Consumption when young and consumption whenold are both normal goods for Seymour, a workersaving for retirement. When the interest rate falls,what happens to Seymour’s consumption when old?a. It definitely increases.b. It definitely decreases.c. It increases only if the substitution effect exceedsthe income effect.d. It decreases only if the substitution effectexceeds the income effect.
The Marginal Rate of substitution depends on the O a. Tastes and preferences of the consumer B Price level of goods income of the consume Oc.income of the consumer O d. Availability of goods