What is equilibrium weekly leisure time and weekly income

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Question: Brendon's utility is given by U || 2I 2 || 6l 2 , where I is his weekly income and l is his leisure time. The total hours after sleep are 80 per week and his wage is $12 per hour. There is also a lump sum weekly subsidy of $720 provided to Brendon by the government. (

a) What is his equilibrium weekly leisure time and weekly income? What percentage of his total time does he work?

b) If the government taxes his wage only at 20%, how do his equilibrium leisure and income change? What percentage of his total time now? What effect dominates his leisure consumption when compared to the equilibrium in (a)? Briefly explain.

c) If the government taxes only his wage, at what ad valorem tax rate will Brendon optimally choose not to work at all?

d) At what ad valorem tax rate will Brendon optimally choose not to work, if both his wage and his subsidy are taxed at the same rate? Briefly explain what effect causes the tax rate here to be higher than in (c) and why.

Reference no: EM132208473

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