1. Consider a world of a representative consumer that chooses between consumption C and leisure ....

 

Transcribed Image Text:

1. Consider a world of a representative consumer that chooses between consumption C and leisure . The budget constraint is C = wNs and the time constraint is h = N³+l. (Note that T = T and does not affect the budget constraint.) a. (4 marks) Draw the budget constraint for this consumer with clearly labelled in- tercepts (draw consumption on the y-axis and leisure on the x-axis). Be sure to show your steps for how you obtain the intercepts, and label the slope as well. b. (5 marks) Assuming preferences are given by an indifference curve, draw the equi- librium outcome. Clearly label consumption, leisure and labour supply. What is the key condition that determines the equilibrium? a. (6 marks) Now suppose the government provides a wage subsidy such that the rep- resentative consumer's wage is (1+s)w, s > 0. Using a graph explain what happens to consumption, labour supply and leisure if the income effect dominates the substitution 1 effect. Provide intuition for why consumption and leisure change. 1. Consider a world of a representative consumer that chooses between consumption C and leisure . The budget constraint is C = wNs and the time constraint is h = N³+l. (Note that T = T and does not affect the budget constraint.) a. (4 marks) Draw the budget constraint for this consumer with clearly labelled in- tercepts (draw consumption on the y-axis and leisure on the x-axis). Be sure to show your steps for how you obtain the intercepts, and label the slope as well. b. (5 marks) Assuming preferences are given by an indifference curve, draw the equi- librium outcome. Clearly label consumption, leisure and labour supply. What is the key condition that determines the equilibrium? a. (6 marks) Now suppose the government provides a wage subsidy such that the rep- resentative consumer's wage is (1+s)w, s > 0. Using a graph explain what happens to consumption, labour supply and leisure if the income effect dominates the substitution 1 effect. Provide intuition for why consumption and leisure change.

Answer rating: 100% (QA)

0 360 340 C whe v h 24 VE W 15 15 2417 to 360154 AFTER Lump sum ... View the full answer