Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider the following twoperson (1 and 2) two-good (X and Y) economy' The utility of person i is given by l l U) = bix?

image text in transcribed
Consider the following twoperson (1 and 2) two-good (X and Y) economy' The utility of person i is given by l l U) = bix? y? where xi and yi denote respectively person i's the consumption amount of good X and good Y, i=1, 2. The value of parameter bi is b1 = 4 for person 1 and b2 = 1 for person 2. Person 1's income is M = 1050 and person 2's income is M2 = 1830 dollars. The price of good X and price of good Y are given respectively by pX :10 and good Y at price py = 10. Suppose the government imposes a per-unit tax tX on good X on the person with the greater income (and if their incomes are equal, imposes it on person 2) and gives the proceeds (i.e., the total tax amount collected) to the other person. Find the value of the per-unit tax such that the utility of the recipient of the tax amount increases by 80 compared to her utility in the absence of this redistribution scheme. Then enter this value of tX below

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

Step: 3

blur-text-image

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

How China Became Capitalist

Authors: Ronald Coase, Ning Wang

1st Edition

1137351438, 9781137351432

More Books

Students also viewed these Economics questions

Question

7. How can an interpreter influence the utterer (sender)?

Answered: 1 week ago