6. Consider the following economy: • Consumers maximize their utility U(C, l) = (l â‹… C)^0.5 subject to the budget constraint Y = w(ℎ − l) + a, where l is leisure, C is consumption, w is the real wage, h is the given amount of time and a is the inherited wealth. All these variables are ‘real’ as opposed to ‘nominal.’ (Notice that the relative price of consumption is equal to 1.) Producers produce consumption goods by using labor (N) only, according to the production function y= ln(N + 1) and maximizes their profits À = ln(N + 1) − wN. • For simplicity, we ignore the government, so there are no taxes. a. Verify whether the following statement is true or false: For consumers, substitution effect always dominates the income effect, in other words, the labor supply curve is upward sloping. And the law of demand applies to labor demand. (Hint: Derive the labor supply and demand curves as a function of real wage and the available time.) b. If the amount of available time, h, is 24 (hours) and = 11, find the equilibrium real wage, employment level, and consumption of this economy. You can ignore the producers’ profits, if any, to answer these questions. Simply assume that the profits will be saved in the firms for some future uses (no dividend income for households)
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more