Question: please explain by details and graphs. 2. Suppose a representative consumer has preference over consumption (6) and leisure (l). Her indifference curve is deseribed by

please explain by details and graphs.

please explain by details and graphs. 2. Suppose a representative consumer has

2. Suppose a representative consumer has preference over consumption (6) and leisure (l). Her indifference curve is deseribed by the following utility function: u(c, l) = 3ln(c) + 2111(1) Her endowment over time is given by h = 1. Her wage rate is 2 in terms of consumption goods. Suppose she has 2 units of dividend income from rm and pays 1 unit of lump-sum tax to the government. (a) Write down the budget constraint for this consumer. (b) Compute this consumer's optimal choice over consumption, leisure and working time. Plot his indifference curve, budget constraint and optimal choice. You need to label the intersection of the budget constraint with Xaxis and y-axis, and the optimal choice. Now, suppose that the government imposes a prOportional income tax on the representative consumer's wage income. That is, the consumer's wage income is now w(1 1-)N'S where 0

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!