2. Bart lives for two periods: young and old. He can supply labor when he's young, earning $1 per hour. His utility function is given by u (C₁, 11, C₂) = log c₁01+3 log c₂ where c is consumption at period t, l₁ is the labor supplied, 3 = ₁1 € (0,1) is the time discount factor, and p is time preference. There is an asset market that individuals can save and borrow at interest rate (1 + r). (a) Solve for the optimization problem (ci, c₂, 4) of Bart. (b) Suppose that the government imposes capital and labor income taxes, TK and TL. Define the life-time budget constraint of Bart with taxes. (c) Solve for the optimization problem with taxes. Does your answer differ from part (a)? Explain.

2. Bart lives for two periods: young and old. He can supply labor when he's young, earning $1 per hour. His utility function is given by u (C₁, 11, C₂) = log c₁01+3 log c₂ where c is consumption at period t, l₁ is the labor supplied, 3 = ₁1 € (0,1) is the time discount factor, and p is time preference. There is an asset market that individuals can save and borrow at interest rate (1 + r). (a) Solve for the optimization problem (ci, c₂, 4) of Bart. (b) Suppose that the government imposes capital and labor income taxes, TK and TL. Define the life-time budget constraint of Bart with taxes. (c) Solve for the optimization problem with taxes. Does your answer differ from part (a)? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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