Consider a one-period model in which the representative consumer maximizes the utility U(C,L)= InC + y L, where C is private consumption, L is leisure and where y is a utility parameter. The consumer works N hours, gets paid an hourly wage rate w, receives dividend income from the firm and pays lump-sum taxes T. All income is spent on private consumption goods. The time endowment constraint is N+L=h. The representative firm produces goods using the technology of production ZN and pays workers' compensation of wN. In equilibrium, labor supplied by the consumer and labor demanded by the firm are equal, and denoted by N. The goods market also clears. Answer parts a) and b) below. a). Let y = 0.04, T = 36, z = 2, h = 100. Solve for a competitive equilibrium in this model. Round your answers to 2 decimal places. Leisure equals Labor equals Private consumption equals b). Now suppose that the utility parameter y increases. This means that O A. consumption C will decrease and leisure L will increase O B. consumption C will increase and leisure L will decrease

Consider a one-period model in which the representative consumer maximizes the utility U(C,L)= InC + y L, where C is private consumption, L is leisure and where y is a utility parameter. The consumer works N hours, gets paid an hourly wage rate w, receives dividend income from the firm and pays lump-sum taxes T. All income is spent on private consumption goods. The time endowment constraint is N+L=h. The representative firm produces goods using the technology of production ZN and pays workers' compensation of wN. In equilibrium, labor supplied by the consumer and labor demanded by the firm are equal, and denoted by N. The goods market also clears. Answer parts a) and b) below. a). Let y = 0.04, T = 36, z = 2, h = 100. Solve for a competitive equilibrium in this model. Round your answers to 2 decimal places. Leisure equals Labor equals Private consumption equals b). Now suppose that the utility parameter y increases. This means that O A. consumption C will decrease and leisure L will increase O B. consumption C will increase and leisure L will decrease

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.14P

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