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3. (20 points) Mead N. Taters' expenditure function is defined by: e(p, u) = 2ps pi u where Ps is the price of steak and
3. (20 points) Mead N. Taters' expenditure function is defined by: e(p, u) = 2ps pi u where Ps is the price of steak and pt is the price of potatoes. The government proposes a farm subsidy program that would reduce the price of steak to $1.00 per pound. It also proposes an increase in income tax to pay for the program. (a) Illustrate graphically the largest increase in income tax that Mead would be willing to pay to secure the lower price for steak. (b) Calculate the largest increase in income tax that Mead would be willing to pay to secure the lower price for steak as a function of his income level (w) and the original prices of steak and potatoes. 70
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