ECON 306 Macroeconomics _ Consider a variant of the static G.E. model in which the representative consumer has preferences given by U(C, l), where U(·) is a standard, quasi-concave utility function. The representative firm's production function,

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Consider a variant of the static G.E. model in which the representative consumer has preferences given by U(C, l), where U(·) is a standard, quasi-concave utility function. The representative firm's ... production function, Screen Shot 2021-06-22 at 10.38.32 AM.png is a standard, concave production function. Suppose that the capital input is fixed. First off, let G = T = 0. Now suppose that the government introduces a policy of subsidizing consumption. It does this by paying households a subsidy of rate s for each unit of consumption that the household purchases. The government finances this subsidy by taxing firms using a lump sum tax. The government balances its budget. The subsidy rate is s > 0, and the lump sum tax is given by τ . Treat the subsidy rate as an exogenous variable and the tax rate as endogenous. (a) Formally define a competitive equilibrium in this economy. (b) Depict the competitive equilibrium in a diagram. (c) Show that your diagram in part (b) satisfies your definition in part (a). (d) Show whether the equilibrium in part (b) is or is not efficient. Explain. Business Economics ECON 306 [Show More]

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