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?

For two goods that I consume and I like both of them, say hamburger and Ice Latte, if hamburger is drawn on the horizontal axis and Ice Latte drawn on the vertical axis, if a uniform ad valorem sales tax of 8% is levied on both of them, this will only shrink the budget set but has no effect on slope of the budget line. True False

Lea's utility function is U =0.7 ln( x ) + y     where x denotes her consumption of good X and y denotes her consumption of good Y. Suppose the government imposes a per-unit tax on good X equal to 5 dollars. The price of good X charged by the sellers of good X is Px = 9 (and does not change due to the tax), the price of good Y is Py = 13 and Lea's income is M = 389. What is Lea's own-price substitution effect of the price increase due to the tax ?

Suppose a consumer’s preferences over two goods x_1 and x_2 are given by u = Square root (X_1,X_2). Her income is M and the two goods cost p1 and p2 per unit respectively. a) Derive her utility at the optimal consumption point as a function of prices and income.  b) Now suppose the government imposes a proportional tax t on the value of the good x_1 (such as VAT). If the consumer approaches the government for income compensation to remain as well off as before the tax (i.e. compensating variation in income), how much money would she ask for?  c) If instead, the government decides to maintain consumer’s utility level not through lump-sum transfer but by introducing a proportional subsidy S on the price of good 2, then what should be the size of the subsidy? d) Based on your answer in part c) discuss how much would it cost for the government to introduce both a tax and a subsidy at the same time? Can you think of any situation when this policy would make sense?