2. Consider an individual who not only consumes goods x and y, but also needs a mini-mum amount of x = xo to survive. Her (Stone-Geary) utility function is given byU(x, y) = (x − x₁)¹/2y¹/2Let prices be pa, Py and income is I > Prxo. (d) Now suppose the government imposed a tax of $1 per unit of good x. This raisesthe price faced by the individual to p = $2. The price of good y and income Istays the same. What is the individual's utility with this excise (consumption)tax?

The individuals maximise their utility at point where the slope of the indifference curve ( Marginal…

d) Now suppose the government imposed a tax of $1 per unit of good r. This raises the price faced by the individual to på = $2. The price of good y and income I stays the same. What is the individual's utility with this excise (consumption) tax?

d) Now suppose the government imposed a tax of $1 per unit of good r. This raises the price faced by the individual to på = $2. The price of good y and income I stays the same. What is the individual's utility with this excise (consumption) tax?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

2. Consider an individual who not only consumes goods x and y, but also needs a mini-
mum amount of x = xo to survive. Her (Stone-Geary) utility function is given by
U(x, y) = (x − x₁)¹/2y¹/2
Let prices be pa, Py and income is I > Prxo.

(d) Now suppose the government imposed a tax of $1 per unit of good x. This raises
the price faced by the individual to p = $2. The price of good y and income I
stays the same. What is the individual's utility with this excise (consumption)
tax?

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