Consider an individual whose utility function is given by U(C, L) ln C ln L, where C is expenditure on consumption and L is hours of leisure Assume that this individual has a total of T hours in a day which she can allocate to either work or leisure She receives an hourly wage rate of w, and has a non labor income V This worker maximizes her utility subject to her budget constraint Assume that 0, 0 Solve the maximization problem stated in part (b) to obtain optimal leisure choice of this worker Calculate the reservation wage for this individual Derive the labor supply curve for this worker Provide the exact and complete equation (f) Now, consider that the government taxes labor earnings of this individual at a tax rate of 20 percent What is the new labor supply function Does the reservation wage change Why Why not

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Question: Consider an individual whose utility function is given by U(C, L) = ln C +ln L, where C is expenditure on consumption and L is

Consider an individual whose utility function is given by U(C, L) = ln C +ln L, where C is expenditure on consumption and L is hours of leisure. Assume that this individual has a total of T hours in a day which she can allocate to either work or leisure. She receives an hourly wage rate of w, and has a non-labor income V . This worker maximizes her utility subject to her budget constraint. Assume that > 0, > 0

Solve the maximization problem stated in part (b) to obtain optimal leisure choice of this worker.
Calculate the reservation wage for this individual
Derive the labor supply curve for this worker. Provide the exact and complete equation. (f)
Now, consider that the government taxes labor earnings of this individual at a tax rate of 20 percent. What is the new labor supply function? Does the reservation wage change? Why/Why not?

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