Question: Sally can work any number of hours she chooses at a wage of w dollars per
hour. She values consumption, C, and also hours of leisure (the hours she is not working),H , in dollars. The hours she works per day is 24 H. Sally's MRS is given by (2 C)/ H:
(i) Write the equation for Sally's budget constraint.
(ii) What two conditions dene Sally's optimal choice of C and H?
(iii) Solve for Sally's optimal choices of C and H . Does the optimal H vary with w?
(iv) What happens to the number of hours Sally works if the government
introduces a tax t on her wage income, so that the wage she actually
takes home is now (1-t)w? Edit
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