only 5, 6, 7 thanks for help lomework2, Econ 4353, Spring 2018, Due Thursday Feb

Question

only 5, 6, 7
thanks for help

lomework2, Econ 4353, Spring 2018, Due Thursday Feb 1 in class. 1. Suppose you observe that hours worked in the economy went up in the same year that income taxes went up. Should you recommend another increase in taxes to further raise income? Explain why or why not. 2. Suppose your income is S100. The price of food is $15. and the price of clothes is $20. Draw your budget constraint labeling the two endpoints 3. Suppose that your income in question 3 rises to $150. draw your new budget constraint 4. Using the production function and cost eurve graph from class. show graphically what happens to the quantity of labor that maximizes profits if the wage rate rises. SS11

Explanation / Answer

5) Following the PIH the consumption function will be C = aYp where Yp is the permanent income of the consumer, where a is the fraction of permanent income that consumer consume every year.

So given a $100 a transitory increase in income we will still consume C= 1000a each year.

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