6. Consider an economy with a straight line PPF. Show how an increase ingovernment spending paid for by an increase in lump sum labor taxesaffects outcomes. Do the same for an increase in government spendingfinanced by a proportional income tax. Explain, by add of a graph aswell as an explanation, why one of these will have larger welfare effectsfor the same increase in government spending

A straight line PPF shows constant opportunity cost between two goods in the PPF, Where there is no…

Answered: 6. Consider an economy with a straight…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. A consumer has preferences over vegetables and meat given by the utility function U(V, M) of vegetables is $2 and the price of each serving of meat is $1. The government wants to encourage vegetable consumption so it puts a tax of $1 on each unit of meat purchased. If the consumer maximizes their utility, how much will the tax reduce their meat consumption? VAM2/3. They currently have $30 to spend, the price of each serving %3D
34. Mohamed can buy either pizza or soda. If the price of pizza and soda doubles, and 30 does Mohamed's money income for that month. We can deduce that Mohamed's budget constraint for that month will: Remain unchanged. Shift in but remain parallel to the old one. c. Shift out but remain parallel to the old one. d. Tilt in so that the slope of the budget constraint is doubled.
3) Joshua is a utility maximizer and likes ice cream. He likes vanilla ice cream, but wouldhappily switch to chocolate ice cream if offered 1 scoop of chocolate ice cream for everyscoop of vanilla ice cream he has to give up. He has $5 of income to spend on ice cream.If vanilla ice cream costs $1 per scoop and chocolate ice cream costs $2.5 per scoop,Joshua will consume ______ scoops of chocolate and ______ scoops of vanilla ice creamper day.A) 0; 5B) 5; 0C) 2; 0D) 0; 2E) None of the above.
H7. Consider an economy consisting of two consumers, Adam and Eve. There are two goods, apples and bananas. Adam likes apples and prefers more apples to less. He somewhat likes bananas: he prefers one banana to none, but is indifferent between having one banana and having more than one banana (i.e., he gets satiated with bananas after having one banana). Eve likes bananas and prefers more bananas to less; she is indifferent to apples. There are exactly 5 apples and 4 bananas available in this economy. Describe all Pareto optimal allocations in this economy. Explain.
4. Laffer Curve In the 1980s, President Reagan based his tax and spending policies on supply side economics. The idea behind supply side economics is the marginal tax rate is so high it discourages work. Cutting the tax rate would end up increasing tax revenue. We develop a simple model of this idea to determine the restrictions on the utility function required to generate a Laffer curve. Let 7 denote the tax rate, w the real wage rate, and n the labor supply. The tax revenue is T = wnT where wn is labor income, which is the tax base. For convenience, assume w is constant. There is no reason for this assumption to be true, but we impose it to focus on the restrictions on the utility function to generate the Laffer curve. As the tax rate T increases, workers substitute toward leisure and away from consumption. Hence as 7 rises, wn falls and tax revenue falls for high enough tax rates. Let U, V satisfy the standard assumptions. The model is static and households are endowed with one unit…
30 22.5 E F %3D 30 35 43 75 90 120 1. Consider the figure above, which shows the budget constraint and the indifference curves of good King Zog. Zog is in equilibrium with an income of $300, facing prices P=$4 and Py-$10. a. How much X does Zog consume? b. If the price of X falls to $2,50, while income and the price of Y stay constant, how much X will Zog consume? c. How much income must be taken away from Zog to isolate the Hicksian income and substitution effects (i.e., to make him just able to afford to reach his old indifference curve at new prices)? d. The total effect of the price change is to change consumption from the point to the point e. The income effect corresponds to the movement from the point the substitution effect corresponds to the movement from the point f. Is X a normal good or an inferior good? to the point to the point while
3
If good 1 (apple) is measured on the horizontal axis and good 2 (oranges) is measured on the vertical axis, if the government imposed a quantity tax of T on apples then the slope of the budget line after the tax is imposed is a. smaller than the slope of the budget line before tax b. larger than the slope of the budget line before tax c. the same as the slope of the budget line before tax d. zero
2. (a) A country's current GDP is $1,000. Its annual growth rate is expected to average 5% over the next 10 years. What's its expected GDP in 10 years? 70 -=14years to double the GDP to $2000. In 10 years, GDP will be: 5 2000 × 14 10 ¿$1,428
4. Graph the budget line for each of the following circumstances. a. Consider Bobby's choice between watching movies on Netflix and all other consumption goods. Movies cost $5 to watch on Netflix. Bobby has cash income of $60 and a $20 Netflix gift card, which cannot be resold and must be used entirely during the current period. (Graph movies vs. money spent on all other goods here.) b. Monica purchases food and clothes and works at a clothing store. Her income is $300, the price of food is $10, and the price of clothes is $50. Monica receives an employee discount of the following form: She gets 50% off the price of all clothes items after purchasing 2 at the regular price.
Assume we are measuring coffee on the horizontal axis and flowers on the vertical axis. The government introduces a tax on coffee consumed beyond C* units. What will happen to the budget constraint? O The budget constraint will become kinked at C* units of coffee and will have a flatter slope at units beyond C*. O The budget constraint will pivot inwards around the horizontal intercept. O The budget constraint will pivot outwards around the vertical intercept. O The budget constraint will shift outwards and become steeper. O The budget constraint will become kinked at C* units of coffee and will have a steeper slope at units beyond C*. O No answer.
Using money creation to pay for government spending

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