The utility function is U(x1x2) = x1(x2 - 2), x1 >= 0, x2 >= 2. The consumer receives a subsidy of 1 m.u. for each unit he buys of the first good while he must pay a 5% tax for the entire value of second good. He is also subject to a 20 m.u. tax for his entire income. Comment the new opt. point, the new budget line and the change in the affordable set. Use I = 500, p= (2 2) as initial values).
The utility function is U(x1x2) = x1(x2 - 2), x1 >= 0, x2 >= 2. The consumer receives a subsidy of 1 m.u. for each unit he buys of the first good while he must pay a 5% tax for the entire value of second good. He is also subject to a 20 m.u. tax for his entire income. Comment the new opt. point, the new budget line and the change in the affordable set. Use I = 500, p= (2 2) as initial values).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The utility function is U(x1x2) = x1(x2 - 2), x1 >= 0, x2 >= 2.
The consumer receives a subsidy of 1 m.u. for each unit he buys of the first good while he must pay a 5% tax for the entire value of second good. He is also subject to a 20 m.u. tax for his entire income.
Comment the new opt. point, the new budget line and the change in the affordable set. Use I = 500, p= (2 2) as initial values).
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