uppose a consumer has preferences between two goods that are perfect substitutes. In this case would the consumers be better off or worse off if the tax with rebate based on original consumption were in effect?
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- Suppose a consumer has preferences between two goods that are perfect substitutes. Can you change prices in such a way that the entire demand response is due to the income effect?A rational consumer would want as much as many goods as possible to maximize utility derived from consuming them. Explain.Lea's utility function is U = In(x) + 0.8 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 2 dollars. The price of good X charged by the sellers of good X is Px = 7 (and does not change due to the tax), the price of good Y is Py = 14 and Lea's income is M = 338. How much money must we give Lea to compensate her for the price increase due to the tax?
- Robin consumes two goods X and Y. His utility function is given by U(x, y) = x*y. The price of Good X used to be $10 per unit but has recently increased to $20 per unit due to the good being taxed. The price of Good Y has remained unchanged at $20 per unit. Robin has $2000 to spend. Suppose the government wants to give Robin enough money so that he can still consume the amount of X and Y that he was consuming before the price change. Which of the following statements is CORRECT? O At the earlier prices, Robin would consume 75 units of X and 100 units of Y. This bundle now costs $2750. But if the government gave Robin an additional $750 then Robin would prefer to consume 80 units each of X and Y. At the earlier prices, Robin would consume 50 units of X and 100 units of Y. This bundle now costs $2500. So, the government needs to give Robin an additional $500 to afford the original bundle. But if the government gave Robin an additional $200 then Alex would prefer to consume 100 units each…An individual utility function is given by U(x,y) = x·y. Let I = $800, px = $20 and py = $40. Suppose that a tax t of $10 per unit is imposed on good x. Assume that the full burden of this excise tax is borne by this consumer, i.e. the new price this individual faces for good x is p’x = px + t = $20+ $10 = $30. Compute this persons utility level with this excise tax. It is equal to?Stuart's utility function for goods X and Y is represented as U(X,Y)=X0.8Y0.2. Assume that his income is $100 and the prices of goods X and Y are $20 and $10, respectively. Now a government subsidy program lowers the price of X from $20 per unit to $10 per unit. (a) Calculate and graphically show the change in good X consumption resulting from the program. (b) Graphically show the change in consumption attributable to the separate income and substitution effects. (c) Show (graphically) how much the program cost the government.
- Jen from Thunder Bay consumes housing (H) and food (F). Her studentstipend is $600/month. She has a utility function of U(H, F) = F1/3H2/3.The initial price of food is pF = 1 and the price of housing is pH = 10. (a) Determine how much food and housing she consumes.(b) Suppose the government decides to subsidize her housing by 50%.This has the effect of lowering the price she actually pays for housingto $5. If the price of food is $1 and the price of housing is $5, calculateJen’s utility maximizing bundle of goods.(c) How much does the Government spend on this program (just on Jen)?(d) Calculate her utility level using the utility function above and thequantities consumed.(e) Calculate Jen’s utility maximizing bundle and her resulting utilitylevel if the government chooses to simply give her the money theywould have spent on the program (rather than subsidize housing).How much utility does Jen get?(f) Given the two programs cost the same, which one is better for Jen?Illustrate the…a) Illustrate the consumption choice for an individual when two goods are considered "perfect substitutes" in consumptionA consumer’s utility only depends on the consumption of goods A and B according to the following Cobb-Douglass utility function: U(A, B) = A1/4 B3/4. The price of goods A and B are $10 and $15, respectively. The consumer has a budget of $1120 that he can use to consume the two goods. A tax of $5 Is imposed on the price of good B. Show that the consumer would prefer a lump sum income tax that raises the same revenue as the tax on good B.
- Economics Suppose that an individual receives utility from two goods X and Y and his utility function is given by: u = -1/X –1/Y. a) Derive the Marshallian and Hicksian demand functions for X and Y. b) How would you determine whether X and Y are gross substitutes or gross complements? c) How would you determine whether X and Y are net substitutes or net complements?Lea's utility function is U = x y0.4 where x denotes her consumption of good X, y denotes her consumption of good Y. The price of good X charged by the sellers of good X is Px = 6, the price of good Y is Py = 6 and Lea's income is M = 411. How many units of good X will Lea buy to maximize her utility?To maximize total utility, consumers will always choose the marginal unit of the good that yields the most marginal utility per price. True False
