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.
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 19SQ
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Transcribed Image Text: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)(h – 1) + T
where w, h, l, C,t and T 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)'/2
%3D
Assume that h = 1, A = 1 and that the government has a balanced budget.
(b) Plot the government tax revenue for 0<t< 1, and for a required revenue of 0.25,
show that there are two tax rates that achieve this. What are they?
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