Course: Public Economics. This is a problem set (Questioni 2,3 are in the word doc). This is not an...

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Course: Public Economics. This is a problem set (Questioni 2,3 are in the word doc). This is not an essay assignment.

Komalavalli · Accepted Answer

2. Changes in alpha reflect changes in society's attitudes toward equality, which have an impact on the optimal level of progressiveness of the tax system. If the right decisions are made behind Rawlsian's veil of ignorance, risk aversion can be useful in selecting the right alpha. The social welfare functions considered here do not preclude altruism; others' income can contribute to the personal utility function.
3. U(C1,C2) =ln(C1)+10/11ln(C2)
a)
Budget constraint
A1 = (1+0.1)*21000-P1C1
A1 = 1.1*21000 = 23100
L = ln(C1)+10/11ln(C2)+λ(23100-A1-P1C1)
∂L/∂C1= 1/C1 -P1C1= 0
∂L/∂C1= 1/C1 =P1C1
C1=1/√P1
∂L/∂C2= 10/11 C2 = 0
C2 = 0
Consumption in the period 2 is 0
c) . U(C1,C2) =1.05ln(C1)+10.

Course: Public Economics. This is a problem set (Questioni 2,3 are in the word doc). This is not an essay assignment.

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