Question
Dan's monthly demand (in number of pints) for Haagen-Dazs ice cream is given by Q = 6 + (I - T)/5000 - P/3. where I
Dan's monthly demand (in number of pints) for Haagen-Dazs ice cream is given by Q = 6 + (I - T)/5000 - P/3. where I is Dan's monthly income, T is his monthly income tax expense and P is the price of a pint of Haagen-Dazs. Suppose the price of a pint of Haagen-Dazs ice cream is $6, Dan's monthly income is $15,000, and his monthly income tax expense is $5,000. Now suppose his monthly income tax expense is increased by 20%. a) Calculate the percentage change in Dan's Haagen-Dazs consumption resulting from the tax increase. b) Calculate the change in Dan's consumer surplus from consuming Haagen-Dazs resulting from the tax increase.
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