I can't get a homework problem started due to wording. I desire to understand it, so I will only put down enough to show my line of thought.

we have a utility function to maximize, say $u(c,\ell)$, and some production function $Y=zF(K,L)$. The government purchases $g$ units of the consumption good using a lump-sum tax $\tau$.

My question: the problem states "government purchase does not enter consumer's utility."

Does this mean that we do $\max_{c,\ell}u(c,\ell)$, relating $c=\ldots - \tau$, and do not do $\max_{c,\ell} u(c,\ell) + \phi(g)$, also with some relation?

Thanks for any clarification

  • 1
    $\begingroup$ I think your understanding is correct. $\endgroup$ – Herr K. Aug 30 '19 at 2:16
  • $\begingroup$ I'm voting to close this question as off-topic because it is about interpretation of wording of a (homework) problem, not about economics $\endgroup$ – Maarten Punt Sep 6 '19 at 10:51

Generally government purchase would have effect on the price of goods in the market (the "crowding out" effect). The question is just saying that $c$ and $\ell$ are not functions of $g$.

  • $\begingroup$ Thank you. This helps a lot! $\endgroup$ – Tainted G Aug 31 '19 at 1:57

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