Question

Jeffrey's preferences are described by U(R.C) = R"C", where R denotes leisure and c denotes consumption. Assume the price of consumption is 1, the wage rate is w, non-labor income is C, and Jeffrey has a total time available (for either work or leisure) equal to R. a. Draw the budget line and write its equation. b. Find the demand function for R' in terms of w, C and R. Hint: imagine you extend the budget line until it crosses the leisure axis. Use the shortcut seen in class to find demands when we have Cobb-Douglas preferences. c. Find the labor supply function, that is, R-R as a function of w, C and R. Is it positively or negatively related to w? Hint: define L' =R-R'. Compute Ollow and check its sign. Assume leisure is defined in hours. What is the value of w that will make Jeffery work eight hours? Express it in terms of C and R. Humans are living longer and longer. If we define R in terms of years of productive life, we can say that is becoming larger. What is the effect of a greater R on optimal leisure and consumption, ceteris paribus? f. Two presidential candidates are proposing alternative policies to increase labor income. Candidate A is proposing a cut in social programs that would decrease C by 20%. Candidate B is proposing a tax cut that would increase w by 20%. Which one would more effective? Explain your answer.

Answer 1

I got to think about this again., again. Come back later! X=22.2