Question

Suppose preferences for consumption and leisure are: u(c, l) = ln(c) + θ ln(l) and households...

Suppose preferences for consumption and leisure are: u(c, l) = ln(c) + θ ln(l)

and households solve:

max c,l u(c, l)

s.t. c=w(1−τ)(1−l)+T

Now suppose that in both Europe and the US we have:

θ = 1.54

w=1

but in the US we have:

τ = 0.34

T = 0.102

while in Europe we have:

τ = 0.53

T = 0.124

Compute the amount of leisure and consumption chosen in the US and Europe. Use the parameters given for each country.

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Tom has preferences over consumption and leisure of the following form: U = ln(c1)+ 2 ln(l)+βln(c2),...
Tom has preferences over consumption and leisure of the following form: U = ln(c1)+ 2 ln(l)+βln(c2), where ct denotes the stream of consumption in period t and l, hours of leisure. He can choose to work only when he is young. If he works an hour, he can earn 10 dollars (he can work up to 100 hours). He can also use savings to smooth consumption over time, and if he saves, he will earn an interest rate of 10%...
3. Suppose that an individual’s utility function for consumption, C, and leisure, L, is given by...
3. Suppose that an individual’s utility function for consumption, C, and leisure, L, is given by U(C, L) = C 0.5L 0.5 This person is constrained by two equations: (1) an income constraint that shows how consumption can be financed, C = wH + V, where H is hours of work and V is nonlabor income; and (2) a total time constraint (T = 1) L + H = 1 Assume V = 0, then the expenditure-minimization problem is minimize...
Consider a consumer who has preferences over consumption (x) and leisure (L) represented by u(L, x)...
Consider a consumer who has preferences over consumption (x) and leisure (L) represented by u(L, x) = 10 ln L + 5 ln x. The consumer has 24 hours in the day (T = 24) to divide between work and leisure. The consumer can choose however many hours they want to work. For each hour of work they are paid a wage given by w = 10. Consumption (x) costs 1 per unit. (a) Initially suppose that the consumer has...
Suppose Tom has a utility function U=C*L C= consumption L= hours of leisure Tom has 100...
Suppose Tom has a utility function U=C*L C= consumption L= hours of leisure Tom has 100 hours to divide between work and leisure per week wage is $20/hr 1. Write down budget constraint in terms of consumption and hours of work 2.Tom make decisions on hours of work, leisure and consumption to max. utility. Explain why we can collapse this problem to one in which he chooses hours of leisure only 3. Find optimal hours of work and total consumption...
Suppose the representative consumer’s preferences are given by the utility function, U(C, l) = aln C...
Suppose the representative consumer’s preferences are given by the utility function, U(C, l) = aln C + (1- a) ln l Where C is consumption and l is leisure, with a utility function that is increasing both the arguments and strictly quiescence, and twice differentiable. Question: The total quantity of time available to the consumer is h. The consumer earns w real wage from working in the market, receives endowment π from his/her parents, and pays the T lump-sum tax...
Suppose u=u(C,L)=4/5 ln⁡(C)+1/5 ln⁡(L), where C = consumption goods, L = the number of days taken...
Suppose u=u(C,L)=4/5 ln⁡(C)+1/5 ln⁡(L), where C = consumption goods, L = the number of days taken for leisure such that L=365-N, where N = the number of days worked at the nominal daily wage rate of $W. The government collects tax on wage income at the marginal rate of t%. The nominal price of consumption goods is $P. Further assume that the consumer-worker is endowed with $a of cash gift. a) Write down the consumer-worker's budget constraint. b) Write down...
Consider the following labour-leisure choice model. U(C,L) = C^(2/3)L^(1/3) C = wN + π – T...
Consider the following labour-leisure choice model. U(C,L) = C^(2/3)L^(1/3) C = wN + π – T H= N+ L Where C: consumption L: leisure N: hours worked H = 50 : total hours w = 4 : hourly wage π = 20 : non-labor income T = 10 : lump-sum tax Suppose the hourly wage changes to w = 5. Perform a decomposition and calculate the substitution, income and total effect for each C, L, N
Suppose that the consumer’s preferences are given by U(c,l)=2c ^(1/2) +2l ^(1/2) where c is the...
Suppose that the consumer’s preferences are given by U(c,l)=2c ^(1/2) +2l ^(1/2) where c is the level of consumption and l is leisure. The consumer has to allocate 50 hours between leisure and labour. The real wage rate is 10 per hour and the real non-wage income is 160. Assume that there is no government. Note that (∂c ^(1/2)) / (∂c) = (1/2) c^(-1/2) (a) Write the budget constraint of the household. (b) Solve for the tangency condition using the...
Tom faces a labor supply decision. His well-behaved preferences over the two goods, L (leisure) and...
Tom faces a labor supply decision. His well-behaved preferences over the two goods, L (leisure) and C (consumption) can be represented by u = 4√L + C. He can choose how many hours to work at the wage rate w per hour and has no non-labor income. The price per unit of consumption is p, and his total free time is T hours. Use the tangency method to find Tom’s demand functions for leisure and consumption. In terms of parameters...
Bernice is has the following utility over leisure (l) and consumption(c): u(l,c) = min{l,c}. We presume...
Bernice is has the following utility over leisure (l) and consumption(c): u(l,c) = min{l,c}. We presume that the wage is $9 and that the time allocation is T = 100. The price of consumption is normalized at $1. She has no other income. (a) How much will she consume and how much time will she work? (b) If the wage rises to $19, how much will she consume and how much time will she work? (c) Is the supply of...