5. Consider an economy with two goods, A and B. Suppose the price of good A is p and let the price of good B be 1. There is a large number of identical consumers. The indifference curves of consumers have the usual shape with diminishing marginal rate of substitution between the two goods. Suppose the government must raise a tax revenue of R, and can do this either by imposing a per-unit tax of t on good A, or by imposing a lump-sum tax T on each consumer. Which policy would the consumers prefer? Explain your reasoning carefully, using any appropriate diagram, and explain the intuition behind your result.
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- Econimic The indifferent curve of consumers have the usual shape with diminishing marginal rate of substitution between the two goods. Suppose the government must raise tax revenue of R and can do this either imposing a per unit tax of t on good A or by imposing a lumpsum tax T on each consumer. Which policy would consumers preferL Explain your reasoning in detail using appropriate diagram. Explain the justification behind your result.4. Graphically decompose the impact of a price increase into the substitution effect and the income effect using both the Hicksian and the Slutsky methods. Assume the affected good is a normal good.2. Consider a society with only two people one rich and one poor-who have the same util- ity functions. These utility functions exhibit diminishing marginal utility. Suppose that taxes are set such that the total amount of utility that each person loses is the same. Does it follow that the tax will be progressive? Explain.
- 19. If people consume less of a good when their income increases, it is call a) a subsidy b) a compliment c) a normal good d) an inferrior goodEconomics. Kindly solve this with explanation Consider a 2-good economy and a consumer endowed with a positive net income m. If the unit prices of goods are p1 and p2 with p1=2p2 and the consumer is invariably indifferent between 5 units of the first good 1 and 8 units of the second good 2. Than the consumer will choose to consume amounts x1 of the first good and x2 of the second good such that; P1x1=p2x2 X=0, x2>0 X1>0, x2=0 None of the answers is correctFor two goods that I consume and I like both of them, say hamburger and Ice Latte, if hamburger is drawn on the horizontal axis and Ice Latte drawn on the vertical axis, if a uniform ad valorem sales tax of 8% is levied on both of them, this will only shrink the budget set but has no effect on slope of the budget line. True False
- 1. Rachel eats eggs and toast for breakfast and insists on having 3 pieces of toast for every two eggs she eats. Write down Rachel's utility function for eggs and toast. Derive her demand functions for eggs and toast. b. Predict what will happen to her consumption of eggs and toast if an income tax cut increases her income by 5%, ceteris paribus. Justify your prediction.Peter har this utility function リ=x,° 0,5 0,5 メー Where U is utility and x, and x, and the volume of goods 1 og 2 Peters income can be expressed as m, while the price on the goods 1 and 2 is given by p, and p, When the price on good 1 is 2 dollar, and the price on good 2 is 1 dollars. Peter has a budgett of 200 dollars. Peter will buy XXX of good 1, and XXX of good 2 Calculate XXX and XXX9) Jonathan spends his income (M) on good X and Y. His preferences are represented by theutility function(X, Y) = Ln X + LnY.The price of good Y is 1 and the price of good X is PX.(a) Derive his demand for X and Y. (b) Jonathan’s father considers X and Y as merit goods and wants to encourage his son toconsume more of them by offering him a subsidy of $1 for every unit of X that hepurchases. Suppose the initial price of X is $2, derive the substitution effect ofJonathan’s demand for X with the subsidy when his income is $20.(c) Does the subsidy increase Jonathan’s consumption of Y?(d) How does the subsidy affect Jonathan’s total spending on X and Y.(e) Instead of offering the subsidy, the father decides to spend the same amount of moneyon Jonathan by offering him an income supplement. Is this a better alternative thanthe unit subsidy in achieving the father’s objective? 12(a) Consider a perfectly competitive industry with several identical firms.The cost function of a price-taking firm…
- 2. Show that if Mr. Green is forced to spend a fixed amount of his income on a particular good, his utility level will be lower than if he could freely allocate his income.Suppose the demand curves for goods A, B, and C have the following functional forms, where Q denotes quantity demanded, P denotes price, and M denotes income: QA = 120 - 3.5PA - 6PB + 14M QB = 100 - 2PB + 3PC + 1.1M Qc = 1500 -0.5Pc - 300M. Based on these demand curves, which of the following goods are known to be normal goods? A, B and C B A and B only C A2. Sam's is interested in two goods, X and Y. His indirect utility function is U* = M px-0.7 py0.7-1. ( same as U* = M /(px0.7 py1-0.7 ) ) where M is Sam's income, and px and py denote respectively the price of good X and the price of good Y. Sam's market demand function for good X is X*=0.7M/px . Find the absolute value of the change in Sam's consumers surplus if the price of good X rises from 1 to 8 dollars due to a per-unit tax imposed by the government, assuming his income is M=533 and price of good Y is equal to 4.