Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A consumer with the utility function U ( x 1 , x 2 ) = x 1 2 x 2 3 faces prices p 1

A consumer with the utility function U(x1,x2)=x12x23 faces prices p1=4,p2=5 and
has an income of $200. Compute the effect of an infinitesimally small increase in
income on the consumer's maximized utility. Hint: Lagrange multiplier.
Consider the consumer in (2). Suppose a tax of $1 per unit is imposed on the
consumption of x1.
a. How much tax revenue would be raised as result?
b. What is the consumer's utility level after the tax?
c. If the same tax revenue was raised via a lumpsum income tax, leaving prices
unchanged, compute the consumer's utility level after the lumpsum tax.
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Software For Chemical Engineers

Authors: Mariano Martín Martín

2nd Edition

1138324213, 978-1138324213

More Books

Students also viewed these Chemical Engineering questions