Consider a Consumer with Preferences for Consumption of a Composite

question 18

Essay

Consider a consumer with preferences for consumption of a composite good (C)and leisure (L)given by the following utility function:
U(C,L)= 2C^1/2 + L
Denote the consumer's wage rate by w and total time available for labor and leisure is normalized to one.The price of consumption is one.Denote the amount of labor supplied as N,so that
N + L = 1.The consumer also earns non-labor income ("allowance")of 0.
a.Write out the budget constraint determining feasible allocations of leisure and consumption.
b.Compute the optimal bundle of leisure and optimal bundle of consumption.
c.Derive the consumer's labor supply function: N*(w,).
d.Determine the effect of increasing non-labor income on the supply of labor (that is,compute the relevant partial derivative).
e.How does non-labor income affect the consumption of the composite good,C?
f.Compute the effects of an increase in wage on consumption and labor supply.Is leisure a normal good?

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Definitions:

Social Interaction

Social interaction is the process by which individuals act and react in relation to others, shaping their behavior through mutual exchange and influence.

Impute Meanings

The act of assigning or attributing significance, interpretation, or value to something based on personal perceptions or cultural norms.

Labeling

The process of classifying or identifying individuals or groups based on specific characteristics, often leading to stereotyping or stigma.

Deviant

Behavior that deviates from societal or cultural norms, which can be criminal or noncriminal in nature.