Consider a representative consumer that has preferences over bundles of consumption goods c, and leisure &. The consumer's preferences satisfy the properties: more is pre- ferred to less; preference for diversity; normality. The consumer is endowed with an endowment of total hours h. Let the consumer's real wage per hour worked in terms of the consumption good be w. Real firm profits, which are distributed to consumers as dividends, are denoted II. The real lump-sum taxes paid by consumers to the government are T. Assume that II > T. (a) Derive the consumer's budget constraint and draw it on a carefully labeled dia- gram. Show the optimal choice for the representative consumer. Explain what the condition that holds at the optimum is.

Consider a representative consumer that has preferences over bundles of consumption goods c, and leisure &. The consumer's preferences satisfy the properties: more is pre- ferred to less; preference for diversity; normality. The consumer is endowed with an endowment of total hours h. Let the consumer's real wage per hour worked in terms of the consumption good be w. Real firm profits, which are distributed to consumers as dividends, are denoted II. The real lump-sum taxes paid by consumers to the government are T. Assume that II > T. (a) Derive the consumer's budget constraint and draw it on a carefully labeled dia- gram. Show the optimal choice for the representative consumer. Explain what the condition that holds at the optimum is.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

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