Suppose that ẞ = and z = hold. In this case, what are the prices of consumption goods and leisure (pc and pi in order) in the competitive equilibrium? (Hint: The competitive equilibrium can be found by solving the labor market clearing condition, N** = Nd*) ○ (Pc, Pi) = (1,21) О ○ (Pc, Pi) = (1,2) (PP)=(1, (2(1+ √5)) ○ (PC, Pi) = (1, 828) Consider the decisions of a representative consumer whose preferences are given by u(C, 1) = C+ Bl₁, in which C is the quantity of consumption and 1 is the quantity of leisure. The parameter Bis positive, and 0 < ß < 1 holds. The consumer faces two constraints. The time constraint is given by 1 + N³ = 1 with N³ as the time spent working (or the labor supply). Further, consumers take wages as given (outside of their control) and obtain wage income equal to wNs. The budget constraint is C w(1-1)+π-T, with TT as the real dividend income received from the representative firm and T as the real lump- sum taxes paid to the government. Assume for simplicity that T = 0. =
Suppose that ẞ = and z = hold. In this case, what are the prices of consumption goods and leisure (pc and pi in order) in the competitive equilibrium? (Hint: The competitive equilibrium can be found by solving the labor market clearing condition, N** = Nd*) ○ (Pc, Pi) = (1,21) О ○ (Pc, Pi) = (1,2) (PP)=(1, (2(1+ √5)) ○ (PC, Pi) = (1, 828) Consider the decisions of a representative consumer whose preferences are given by u(C, 1) = C+ Bl₁, in which C is the quantity of consumption and 1 is the quantity of leisure. The parameter Bis positive, and 0 < ß < 1 holds. The consumer faces two constraints. The time constraint is given by 1 + N³ = 1 with N³ as the time spent working (or the labor supply). Further, consumers take wages as given (outside of their control) and obtain wage income equal to wNs. The budget constraint is C w(1-1)+π-T, with TT as the real dividend income received from the representative firm and T as the real lump- sum taxes paid to the government. Assume for simplicity that T = 0. =
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.14P
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Transcribed Image Text:Suppose that ẞ
=
and z =
hold. In this case, what are the prices of consumption goods and
leisure (pc and pi
in order) in the competitive equilibrium? (Hint: The competitive equilibrium can
be found by solving the labor market clearing condition, N** = Nd*)
○ (Pc, Pi) = (1,21)
О
○ (Pc, Pi) = (1,2)
(PP)=(1, (2(1+ √5))
○ (PC, Pi) = (1, 828)
Transcribed Image Text:Consider the decisions of a representative consumer whose preferences are given by u(C, 1) =
C+ Bl₁, in which C is the quantity of consumption and 1 is the quantity of leisure. The parameter
Bis positive, and 0 < ß < 1 holds.
The consumer faces two constraints. The time constraint is given by 1 + N³ = 1 with N³ as the
time spent working (or the labor supply). Further, consumers take wages as given (outside of their
control) and obtain wage income equal to wNs. The budget constraint is C w(1-1)+π-T,
with TT as the real dividend income received from the representative firm and T as the real lump-
sum taxes paid to the government. Assume for simplicity that T = 0.
=
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