HHs face constraints when trying to find their preferred (C, 1) bundle: 1. I cannot exceed...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
HHs face constraints when trying to find their preferred (C, 1) bundle: 1. I cannot exceed 24 hours: where h is the total time available (24 hours) Ns is the time spent working, a.k.a. the labour supply 2. C cannot exceed the consumer's disposable income: C = WNS +π-T I where I 1 + Ns = h w is the real wage π is dividend income T is are lump sum taxes Question 2: The household problem [30 marks]. Consider the static model of the household discussed in Lecture 3. Suppose that instead of being subject to a lump-sum tax, the consumer faces a labour income tax è and a consumption tax tc. For simplicity, we normalize h (total time available) as 1 and there is no dividend income. a) Write down the household's budget constraint. (3 marks) b) Draw the household's budget constraint. What is the slope? (5 marks) c) Find the MRS1,c (Hint: using the Lagrange method, first order condition). How do the effects of T and Trelate to each other? Explain. (8 marks) d) If the household choose C* and 1*, how much tax revenue does the government collect? (5 marks) e) Suppose that the government had originally set Tc = 0 and T> 0 and now wants to enact a tax reform that uses consumption taxes instead of income taxes. What would be the level of Te that leaves the decisions of the household unchanged? (5 marks) f) How much the revenue does the government collect under the new system? How does it compare to the old system? Explain. (4 marks) HHs face constraints when trying to find their preferred (C, 1) bundle: 1. I cannot exceed 24 hours: where h is the total time available (24 hours) Ns is the time spent working, a.k.a. the labour supply 2. C cannot exceed the consumer's disposable income: C = WNS +π-T I where I 1 + Ns = h w is the real wage π is dividend income T is are lump sum taxes Question 2: The household problem [30 marks]. Consider the static model of the household discussed in Lecture 3. Suppose that instead of being subject to a lump-sum tax, the consumer faces a labour income tax è and a consumption tax tc. For simplicity, we normalize h (total time available) as 1 and there is no dividend income. a) Write down the household's budget constraint. (3 marks) b) Draw the household's budget constraint. What is the slope? (5 marks) c) Find the MRS1,c (Hint: using the Lagrange method, first order condition). How do the effects of T and Trelate to each other? Explain. (8 marks) d) If the household choose C* and 1*, how much tax revenue does the government collect? (5 marks) e) Suppose that the government had originally set Tc = 0 and T> 0 and now wants to enact a tax reform that uses consumption taxes instead of income taxes. What would be the level of Te that leaves the decisions of the household unchanged? (5 marks) f) How much the revenue does the government collect under the new system? How does it compare to the old system? Explain. (4 marks)
Expert Answer:
Related Book For
Posted Date:
Students also viewed these finance questions
-
In the previous question, suppose the corporate tax rate is 35 percent. What is EBIT in this case? What is the WACC? Explain.
-
In the previous question, suppose the corporate tax rate is 23 percent. What is EBIT in this case? What is the WACC? Explain. Data From Previous Question. Gunnar Corp. uses no debt. The weighted...
-
Hema Corp. is an all equity firm with a current market value of $1000 million (i.e., $1 billion), and will be worth $900 million or $1400 million in one year. The risk-free interest rate is 5%....
-
The condensed financial statements of Soule SpA for the years 2016 and 2017 are presented as follows. SOULE SpA Statements of Financial Position December 31 SOULE SpA Income Statements For the Years...
-
Suppose that each of two different varieties of corn is treated with two different types of fertilizer in order to compare the Yields, and that K independent replications are obtained for each of the...
-
What is the difference between a homogeneous and a heterogeneous azeotrope
-
\(\left(\frac{3 b}{5} ight)^{4}\) Simplify the expression.
-
For the year ended December 31, 2014, the job cost sheets of Cinta Company contained the following data. Other data: 1. Raw materials inventory totaled $15,000 on January 1. During the year, $140,000...
-
WILLIAMS PRODUCTS INC. Income Statement-School Knapsacks For the Quarter Ended June 30 Sales Variable expenses: Variable manufacturing expenses Sales commissions Shipping Total variable expenses...
-
Find peak time, settling time, and percent overshoot for only those responses below that can be approximated as second-order responses. a. b. c. d. c(t) = 0.003500 0.001524e-4...
-
You are reviewing the data from your project that has been going on for many weeks. It appears that the curve is much flatter than expected and there isn't a tight summary of candidates in any...
-
Which category does Prevention of catheter associated urinary tract infection fall? Community or leadership?
-
What are the implications of globalization on traditional cultural identities, particularly regarding the commodification of cultural artifacts and the homogenization of cultural practices ?
-
June, age 36 just started at a new company that is offering a $90,000 life insurance benefit. What is the annual taxable benefit to June? Round to the nearest dollar
-
Explain the difference between internal failure costs and external failure costs and provide one example for each type
-
what an enterprise agreement is the principles of enterprise agreements that must be applied in maintaining payroll systems. 2. Identify and briefly describe one (1) other industrial instruments...
-
Please provide the:Total product cost=total period cost=the two for "variable cost per unit sold"=the two "total variable costs"=average fixed manufacturing cost per unit= the two "totalfixed ma...
-
Graph the following conic sections, labeling vertices, foci, directrices, and asymptotes (if they exist). Give the eccentricity of the curve. Use a graphing utility to check your work. 10 5 + 2 cos 0
-
Suppose Levered Bank is funded with 2% equity and 98% debt. Its current market capitalization is $10 billion, and its market to book ratio is 1. Levered Bank earns a 4.22% expected return on its...
-
Markum Enterprises is considering permanently adding $100 million of debt to its capital structure. Markums corporate tax rate is 35%. a. Absent personal taxes, what is the value of the interest tax...
-
Redo Problem 21, but assume the following: a. Investors pay a 15% tax on dividends but no capital gains taxes or taxes on interest income, and Kay does not pay corporate taxes. b. Investors pay a 15%...
-
According to the 2006 ACFE Report, organizations lose how much to fraud and abuse? a. Five percent of annual revenue b. About \(\$ 4,500\) per employee each year c. About \(\$ 12\) per day per...
-
What percent of occupational fraud involves asset misappropriation a. 55 percent b. 65 percent c. 70 percent d. 80 percent e. 90 percent
-
Who coined the phrase "white collar crime?" a. Joe Wells b. Edwin Sutherland c. Michael Comer d. D.R. Cressey e. James McCleland
Making Transparent Environmental Management Decisions 2014 Edition - ISBN: 9783642319990 - Free Book
Study smarter with the SolutionInn App