4 1(a) If u=min(3x,y) and I=250 and py=5, what are the income and substitution effectsof an decrease in the price of x from $8 to $6? Show your work.(b) for the utility function u=2x+y1/2, for l=250 and initial prices py=6 and py=5, showthat a sales tax of $2 per unit of x is worse in terms of utility than the equivalentincome tax (i.e. the income tax where the individual pays the same amount of tax asthe sales tax case).

given:- u=min(3x,y) I=250 Px(old)=8 Px(new)=6…

1(a) If u=min(3x,y) and I=250 and py=5, what are the income and substitution effects of an decrease in the price of x from $8 to $6? Show your work. (b) for the utility function u=2x+y1/2, for l=250 and initial prices px=6 and py-5, show that a sales tax of $2 per unit of x is worse in terms of utility than the equivalent income tax (i.e. the income tax where the individual pays the same amount of tax as the sales tax case).

1(a) If u=min(3x,y) and I=250 and py=5, what are the income and substitution effects of an decrease in the price of x from $8 to $6? Show your work. (b) for the utility function u=2x+y1/2, for l=250 and initial prices px=6 and py-5, show that a sales tax of $2 per unit of x is worse in terms of utility than the equivalent income tax (i.e. the income tax where the individual pays the same amount of tax as the sales tax case).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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