Illustrate general equilibrium and the Laffer curve in the context of a repre- sentative consumer with a utility function: U(C, 1) = In(C) + In(1) that he or she maximises subject to a constraint: C = w(1 t) (hl) + π where w, h, l, C, t and π are wages, hours of time available, leisure, consumption, tax rate, and dividend income. The production function for this economy is given by Y = C+ G = A(h – 1) ¹/² - Assume that h= 1, A = 1 and that the government has a balanced budget.
Illustrate general equilibrium and the Laffer curve in the context of a repre- sentative consumer with a utility function: U(C, 1) = In(C) + In(1) that he or she maximises subject to a constraint: C = w(1 t) (hl) + π where w, h, l, C, t and π are wages, hours of time available, leisure, consumption, tax rate, and dividend income. The production function for this economy is given by Y = C+ G = A(h – 1) ¹/² - Assume that h= 1, A = 1 and that the government has a balanced budget.
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.11P
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