Reference no: EM131512844

Read the question below and please state is my answer is logical or not--this assignment is extremely important to have no errors

1. Develop a more detailed (than the ones presented above) model of household consumption spending - explain and justify your model.

Using a model of household consumption spending such as C=c0+c1(Y-t), one way to make this model more detailed would be to add the disclaimer on the taxes that t>n (where n is the $ amount at which the individual person becomes price sensitive). My reasoning for this would be the original model states that if people's income increases they will spend more money after they pay their taxes. I think, to make this model more detailed, one could add a qualifier to this statement and say that if people's income increases they will spend more money after they pay their taxes *if their taxes are over a certain $ amount. For example, adding on that including taxes in the equation is only necessary if taxes are above a certain point could include stating that taxes have to be greater than whatever number the individual becomes price sensitive. Undoubtedly this number would vary according to the individual. But, if taxes were below the point at which the person was price sensitive, that amount to pay would likely to not have an effect on how much the person would buy (because the amount could be a lower number, insignificant to that person especially if they have more than enough means to cover it). However, if the taxes were higher than the point at which the person became price sensitive, then it is likely that taxes will have an effect on how much money they spend.