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Consider a consumer with strictly monotonic, strictly convex, and continuous preferences over two commodities: telephone calls and other goods. Suppose that currently the consumer has
Consider a consumer with strictly monotonic, strictly convex, and continuous preferences over two commodities: telephone calls and other goods. Suppose that currently the consumer has to pay an excise tax t on each telephone call. Let his current consumption bundle be x x so that his total tax equals txgood is telephone calls and good is other goods Show that if the tax were removed and he had to pay a onetime fee equal to T tx instead the same amount but as a lump sum then he would be better off.
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