Consider the consumer who can derive income from working and also entitled to some dividends (); however,
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Consider the consumer who can derive income from working and also entitled to some dividends (π); however, this consumer has to pay a lump sum tax (T). Further assume that consumption (C) and leisure (l) are perfect complements, and the consumer always desires a consumption bundle where the quantities of consumption and leisure are equal, that is a = 1. Suppose that w = 1.75, π = 2.8, and T = 5, also assume that total number of hours available (h) =16. Determine the consumer’s optimal choice of consumption and leisure; illustrate your answer on the graph (budget constraint, indifference curves, and the optimal consumption bundle).
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