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Question: 1 preferences or policy europeans work fewer hours than americans...

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1. Preferences or Policy? Europeans work fewer hours than Americans. There are many reasons for this fact. You will consider two different reasons in this question. (a) Suppose that both the utility functions and before-tax real wages are the same in the US and Europe. However, labor income tax is higher in Europe. In a single carefully labeled diagram, show how it can be the case that Europeans work fewer hours than Americans. Provide an explanation for your graph. (b) Suppose that both before-tax and after-tax real wages are the same, but the utility func- tions are different. In a single carefully labeled diagram, show how it can be the case that Europeans work fewer hours than Americans. Provide an explanation for your graph. (c) Regarding part (b) above, which of the following statements is (are) correct? Briefly explain. i. If u(c.l-All-α, then the value of Q ls bigger for Europe. Assume 0 < α < 1 ii. Îf u(e,l)-(e +1*) , then the value of σ įs bigger for Europe. Assume σ < 1.

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