ECON 302 Midterm: ECON302 Midterm 22 Fall 2016 solution
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Consider the classical model studied in class, and briefly described as l. He is endowed with h hours which he can allocate between follows. The consumer derives utility from consumption c and leisure l according to lcu leisure and work sl . The real wage is w. the consumer owns a firm and receives. Dl where a is productivity parameter (tfp), k is the capital owned by the firm, and dl is labor employed by the firm. The government taxes labor income at the rate of wt dividend income at the rate of t. , and spends its tax revenue on consumption g. and. Y: write the consumer"s utility maximization problem. 1): derive the consumer"s demand for consumption and leisure using the results from. We rewrite the budget constraint in the form of x xp. Explanation: from microfoundations, we know that consumers with these cobb-douglas preferences, spend a fraction of their income on c and a fraction.
