Q3. A consumer with the utility function U(₁,2) = xx and her income $200 faces the market prices (P₁, P2) = (4,4). Now the government introduces a consumption tax of $2 for every unit of good ₁ purchased. A. Find the total tax revenue. B. Instead of the consumption tax, if the government takes away a lump- sum amount from the consumer as an income tax, maintaining the same welfare level the consumer has under $2 consumption tax, how much more revenue the government could collect?

Q3. A consumer with the utility function U(₁,2) = xx and her income $200 faces the market prices (P₁, P2) = (4,4). Now the government introduces a consumption tax of $2 for every unit of good ₁ purchased. A. Find the total tax revenue. B. Instead of the consumption tax, if the government takes away a lump- sum amount from the consumer as an income tax, maintaining the same welfare level the consumer has under $2 consumption tax, how much more revenue the government could collect?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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