Question
In: Economics
Consider a perfect competitive economy with a single good, X, and two factors of production: labour,...
Consider a perfect competitive economy with a single good, X, and two factors of production: labour, L, and capital, K. The production function of a representative firm is: X = K^(1/2) L^(1/2) . Production factors and the firm are owned by a single consumer. Assume that labour supply is infinitely inelastic at the quantity L= 16, while the amount of capital is infinitely elastic at the price r=4 (this is the case of a small open economy). Take good X as numerarire, so that Px = 1.
a) Find the level of employment, the wage rate, the price of capital, and national income in general equilibrium
b) Assume that an ad-valorem tax on capital tk =0.2 is established. Find the level of employment, the wage rate, the price of capital, as well as the tax revenue in the new general equilibrium. Who bears the tax burden?
c) Suppose that instead of a tax on capital the government imposes an ad-valorem labour tax that collects the same tax revenue as in (b). Find the new equilibrium (employment and factor prices). Do workers prefer the capital tax rather than the labour tax?
Solutions
Rahul Sunny answered 1 month agoRelated Solutions
1. Consider the production possibility frontier for a simple two-good (closed) economy. Quantities of good x...
1. Consider the production possibility frontier for a simple
two-good (closed) economy. Quantities of good x produced are
plotted on the horizontal axis. Quantities of good y produced are
plotted on the vertical axis. Suppose that the production of both x
and y depends only on labor input and that the production functions
for these goods are: x = f(lx) = lx and y =
f(ly) = ly. Total labor supply is limited by:
lx + ly = 100. The...
Consider an economy with two sectors: agriculture and production of computers. There are two factors used...
Consider an economy with two sectors: agriculture and production
of computers. There are two factors used in the production of both
industries: labor, mobile between the industries, land specific to
agricultural production and capital specific to the production of
computers. This economy is involved in international trade and
workers spend most of their earnings on computers. Now assume that
the world price of agricultural products increases and the price of
computers does not change, then
A.Both nominal and real wages...
Consider an economy with two sectors: agriculture and production of fidget spinners. There are two factors...
Consider an economy with two sectors: agriculture and production
of fidget spinners. There are two factors used in the production of
both industries: labor, mobile between the industries, land
specific to agricultural production and capital specific to the
production of fidget spinners. This economy is involved
international trade andworkers spend most of their earnings on
agricultural products. Now assume that the world price of
agricultural products decreases and price of fidget spinners does
not change, then
A. Nominal wage of...
3. A perfectly competitive firm produces output y using two factors of production (inputs), labour L...
3. A perfectly competitive firm produces output y using two
factors of production (inputs), labour L and capital K. The firm’s
production function is ?(?, ?) = (?^1/2 + ?^1/2) ^2. The wage rate
is w = 9 and the rental price of capital is r = 1.
a. Find the long run equilibrium price p in this market.
b. Suppose in the short run, capital is fixed at K = 1. The
output price in the short run is...
Let us consider a production economy endowed with a single perfectly competitive firm renting at every...
Let us consider a production economy endowed with a single
perfectly competitive firm renting at every time t both labour and
physical capital from households at the real rental rates
?t, ?t, respectively. In equilibrium at time
t: ?t = ???t and ?t=
???t where ???t and ???t denote
the marginal product of labour and the marginal product of physical
capital, respectively. The aggregate output/income ?t at
every time t is produced according to the following production
function:
...
Let us consider a production economy endowed with a single perfectly competitive firm renting at every...
Let us consider a production economy endowed with a single
perfectly competitive firm renting at every time t both labour and
physical capital from households at the real rental rates
?t, ?t, respectively. In equilibrium at time
t: ?t = ???t and ?t=
???t where ???t and ???t denote
the marginal product of labour and the marginal product of physical
capital, respectively. The aggregate output/income ?t at
every time t is produced according to the following production
function:
...
Let us consider a production economy endowed with a single perfectly competitive firm renting at every...
Let us consider a production economy endowed with a single
perfectly competitive firm renting at every time t both labour and
physical capital from households at the real rental rates
?t, ?t, respectively. In equilibrium at time
t: ?t = ???t and ?t=
???t where ???t and ???t denote
the marginal product of labour and the marginal product of physical
capital, respectively. The aggregate output/income ?t at
every time t is produced according to the following production
function:
...
Let us consider a production economy endowed with a single perfectly competitive firm renting at every...
Let us consider a production economy endowed with a single
perfectly competitive firm renting at every time t both labour and
physical capital from households at the real rental rates
?t, ?t, respectively. In equilibrium at time
t: ?t = ???t and ?t=
???t where ???t and ???t denote
the marginal product of labour and the marginal product of physical
capital, respectively. The aggregate output/income ?t at
every time t is produced according to the following production
function:
...
Let us consider a production economy endowed with a single perfectly competitive firm renting at every...
Let us consider a production economy endowed with a single
perfectly competitive firm renting at every time t both labour and
physical capital from households at the real rental rates
?t, ?t, respectively. In equilibrium at time
t: ?t = ???t and ?t=
???t where ???t and ???t denote
the marginal product of labour and the marginal product of physical
capital, respectively. The aggregate output/income ?t at
every time t is produced according to the following production
function:
...
Consider an economy in which two factors of production, labor and capital, produce two goods, capital...
Consider an economy in which two factors of production, labor
and capital, produce two goods, capital intensive pharmaceuticals
and labor-intensive clothing. Suppose that both factors of
production are freely mobile across both industries and that all
producers, consumers, capitalists and workers are price-takers.
Suppose that there are currently steep tariffs on all imported
goods, but there is a bill before Parliament to eliminate those
tariffs, and the government has invited citizen representatives of
workers and capitalists to express their opinions...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- the standard deviation of the portfolio's return is lower than those of the two securities, A...
- Pure phosgene gas (COCl2), 0.0340 mol, was placed in a 1.30-L container. t was heated t...
- Sam's Cat Hotel operates 5252 weeks per? year, 77 days per? week, and uses a continuous...
- The equilibrium constant for the reaction CCl4(g) = C(s) + 2Cl2(g) at 700ºC is 0.85. Determine the...
- Which ratio measures the corporation's ability to meet its financial obligations? a. leverage ratios. b. liquidity...
- Tail of a File, C++ Program. write a program that asks the user for the name...
- A roller-coaster track is being designed so that the roller-coaster car can safely make it around...
ADVERTISEMENT