The uvw union and hon corporation are negotiating contract terms. assume that the union members are in the 24% marginal tax bracket and that all benefits are provided on a nondiscriminatory basis. complete the letter to the uvw union members explaining the tax consequences of the options listed below. a. the company would eliminate the $250 deductible on medical insurance benefits. most employees incur more than $250 each year in medical expenses. (assume that the employees would not be able to deduct the insurance expenses as a medical expense because of the percent of agi floor.) b. employees would get an additional paid holiday with the same annual income (the same pay but less work). c. an employee who did not need health insurance (because the employee's spouse works and receives family coverage) would be allowed to receive the cash value of the coverage.

3. saving two consumers, larry and jeff, have utility functions defined over the two periods of their lives: middle age (period zero) and retirement (period 1). they have the same income in period 0 of m dollars and they will not earn income in period 1. the interest rate they face is r. larry’s and jeff’s utility functions are as follow. = 0.5 + 0.5 and = 0.5 + 0.5 for each person is between zero and one and represents each consumer’s temporal discount econ 340: intermediate microeconomics. ben van kammen: purdue university. rate. a. write the budget constraint that applies to both jeff and larry in terms of consumption in each period and ), interest rate, and m. b. what is larry’s and what is jeff’s marginal rate of intertemporal substitution? c. what is the slope of the budget constraint? d. write each consumer’s condition for lifetime utility maximization. e. re-arrange the conditions from part (d) to solve for the ratio, . f. if > which consumer will save more of his middle age income? g. if > 1 1+ , in which period will larry consume more: = 0 or = 1?