Hugo likes computers (C) and video games (G) and has the following utility: U (C,G) = ln C + G(a) Suppose the price of each computer is pC = 1, the price of each game is pG = 1, and Hugo has income I = 20. Find the Marshallian demand for C and G.(b) Find Hugo’s indirect utility at the above price and income.(c) Suppose the government imposes a tax of 1 dollar on video games. What happens to Hugo’s consump- tion of each good and his indirect utility? How much money does the government raise?(d) Suppose the government instead imposes a lump sum tax that is equal to the amount of revenue from thepreviousproblem. SonowyouhavepC =1,pG =1,I=20−τ,whereτ istheamountofrevenue from part c). What happens to Hugo’s optimal consumption and his indirect utility? How does his indirect utility compare to the previous case of a tax on video games?
Hugo likes computers (C) and video games (G) and has the following utility: U (C,G) = ln C + G
(a) Suppose the
(b) Find Hugo’s indirect utility at the above price and income.
(c) Suppose the government imposes a tax of 1 dollar on video games. What happens to Hugo’s consump- tion of each good and his indirect utility? How much money does the government raise?
(d) Suppose the government instead imposes a lump sum tax that is equal to the amount of revenue from thepreviousproblem. SonowyouhavepC =1,pG =1,I=20−τ,whereτ istheamountofrevenue from part c). What happens to Hugo’s optimal consumption and his indirect utility? How does his indirect utility compare to the previous case of a tax on video games?
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