Note that MUX-Y and MUX-X Comparing a Quantity tax to an Income tax Charlie's utility over X and Y is given by U=XY. The prices of each good is $1 and his income is $100. The government is contemplating whether to use an income tax or a quantity tax to collect some money from Charlie. The government wants to know which policy Charlie would prefer for a given amount of tax revenue. a. How much of his income will Charlie allocate for good X? What is the demand for X? the demand for Y?
Note that MUX-Y and MUX-X Comparing a Quantity tax to an Income tax Charlie's utility over X and Y is given by U=XY. The prices of each good is $1 and his income is $100. The government is contemplating whether to use an income tax or a quantity tax to collect some money from Charlie. The government wants to know which policy Charlie would prefer for a given amount of tax revenue. a. How much of his income will Charlie allocate for good X? What is the demand for X? the demand for Y?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
a,b,c,d
![Note that MUX-Y and MUX-X
Charlie's utility over X and Y is given by U=XY. The prices of each good is $1 and his income is $100. The government is
contemplating whether to use an income tax or a quantity tax to collect some money from Charlie. The government
wants to know which policy Charlie would prefer for a given amount of tax revenue.
a. How much of his income will Charlie allocate for good X? What is the demand for X? the demand for Y?
Comparing a Quantity tax to an Income tax
b. Assume the government imposes a quantity tax of $1 for each X he buys. How many X will he consume? Y?
C.
Fill in the first two empty rows in the table below to show the consumption and utility under each case.
X
Y
U
No tax
Quantity tax of $1
Income tax of $.....
d. What is the income tax that is equivalent to the quantity tax of $1?
e.
Is the consumption bundle under the quantity tax affordable under the income tax?
f. Fill in the last row in the above table
g. Represent the two policies in the graph below. Which one should the government use?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa5e22c97-eaaa-48d5-931c-af54a38196b6%2F2468903d-1a00-43bb-b645-122727cc424f%2F4b1zcb_processed.png&w=3840&q=75)
Transcribed Image Text:Note that MUX-Y and MUX-X
Charlie's utility over X and Y is given by U=XY. The prices of each good is $1 and his income is $100. The government is
contemplating whether to use an income tax or a quantity tax to collect some money from Charlie. The government
wants to know which policy Charlie would prefer for a given amount of tax revenue.
a. How much of his income will Charlie allocate for good X? What is the demand for X? the demand for Y?
Comparing a Quantity tax to an Income tax
b. Assume the government imposes a quantity tax of $1 for each X he buys. How many X will he consume? Y?
C.
Fill in the first two empty rows in the table below to show the consumption and utility under each case.
X
Y
U
No tax
Quantity tax of $1
Income tax of $.....
d. What is the income tax that is equivalent to the quantity tax of $1?
e.
Is the consumption bundle under the quantity tax affordable under the income tax?
f. Fill in the last row in the above table
g. Represent the two policies in the graph below. Which one should the government use?
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