Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
Question
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Chapter 4, Problem 4.7P

a)

To determine

The graph a graph that shows an income grant to a person provides more utility than a subsidy on good x.

b)

To determine

The extra purchasing power that is needed to increase a person’s utility from U = 2 to U = 3.

By using the Cobb−Douglas expenditure function.

c)

To determine

The degree to which good x should be subsidized to increase a person’s utility from U = 2 to U = 3 and the subsidy cost for the government along with the cost comparison with the cost calculated in part b.

d)

To determine

The solutions of parts (b) and (c) by re-solving for the case a = 0.3.

e)

To determine

Whether the calculations in the problem have changed when the expenditure function for the case of the fixed proportion from equation 4.54 is used instead.

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