This problem considers the decisions of a consumer whose preferences are given by
u(C,l)=2C+4lnl,
in which C is the quantity of consumption and l is the quantity of leisure. The consumer faces two constraints. The time constraint is given by l+Ns=1 with Ns as the time spent working (or the labor supply). The main advantage of working is the wages consumers receive.
Consumers take wages as given (outside of their control) and obtain wage income equal to wNs. The budget constraint is C=wNs+π−T, with π as real dividend income and T as the real lump-sum taxes paid to government. Assume that an interior solution always exists in the optimal consumption-leisure choice. Which event would NOT increase leisure of the consumer? Choose the correct one.
The following multiple-choice options contain math elements, so you may need to read them in your screen reader's “reading” or “browse” mode instead of “forms” or “focus” mode.
Choice 1 of 4: A decrease in the coefficient of C in the utility function
Choice 2 of 4: An increase in the coefficient of ln l in the utility function
Choice 3 of 4: An increase in the dividend income, π
Choice 4 of 4: A decrease in the wage rate, w, when w>=2