The marginal utility that Donald receives from carrots (MUc) and donuts (MUd) are given as follows: MUc = Qd MUd = Qc Gino has an income (I) of £120 and the price of carrots (Pc) and donuts (Pd) are both £1. a. What is Gino's budget line? b. What quantities of Qc and Qd will maximize Gino's utility? c. Holding Gino's income and Pd constant at £120 and £1 respectively, what is Gino's demand curve for carrots? d. Suppose that a tax of £1 per unit is levied on donuts. How will this alter Gino's utility maximizing market basket of goods? e. Suppose that, instead of the per unit tax in (e), a lump sum tax of the same dollar amount is levied on Gino. What is Gino's utility maximizing market basket? f. The taxes in (e) and (f) both collect exactly the same amount of revenue for the government, which of the two taxes would Gino prefer? Show your answer numerically and explain why Gino prefers the per unit tax over the lump sum tax, or vice versa, or why he is indifferent between the two taxes
The marginal utility that Donald receives from carrots (MUc) and donuts (MUd) are given as follows: MUc = Qd MUd = Qc Gino has an income (I) of £120 and the price of carrots (Pc) and donuts (Pd) are both £1. a. What is Gino's budget line? b. What quantities of Qc and Qd will maximize Gino's utility? c. Holding Gino's income and Pd constant at £120 and £1 respectively, what is Gino's demand curve for carrots? d. Suppose that a tax of £1 per unit is levied on donuts. How will this alter Gino's utility maximizing market basket of goods? e. Suppose that, instead of the per unit tax in (e), a lump sum tax of the same dollar amount is levied on Gino. What is Gino's utility maximizing market basket? f. The taxes in (e) and (f) both collect exactly the same amount of revenue for the government, which of the two taxes would Gino prefer? Show your answer numerically and explain why Gino prefers the per unit tax over the lump sum tax, or vice versa, or why he is indifferent between the two taxes
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The marginal utility that Donald receives from carrots (MUc) and donuts (MUd) are given as follows:
MUc = Qd MUd = Qc
Gino has an income (I) of £120 and the price of carrots (Pc) and donuts (Pd) are both £1.
a. What is Gino's budget line?
b. What quantities of Qc and Qd will maximize Gino's utility?
c. Holding Gino's income and Pd constant at £120 and £1 respectively, what is Gino's demand curve for carrots?
d. Suppose that a tax of £1 per unit is levied on donuts. How will this alter Gino's utility maximizing market basket of goods?
e. Suppose that, instead of the per unit tax in (e), a lump sum tax of the same dollar amount is levied on Gino. What is Gino's utility maximizing market basket?
f. The taxes in (e) and (f) both collect exactly the same amount of revenue for the government, which of the two taxes would Gino prefer? Show your answer numerically and explain why Gino prefers the per unit tax over the lump sum tax, or vice versa, or why he is indifferent between the two taxes.
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