Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Muhtarr has a utility function for M&M Cookie ( X1) and Twix (X2 ); U(X1,X2) - 2X1 + X2. The prices of M&M Cookie &

image text in transcribed
Muhtarr has a utility function for M&M Cookie ( X1) and Twix (X2 ); U(X1,X2) - 2X1 + X2. The prices of M&M Cookie & Twix are $1 each and Muhtarr has an income of $20 to spent on these two goods, Muhtarr's optimal consumption of M&M Cookie is and Twix is , (please put your answer in numerical values with no comma or decimal place). Muhtarr's utility is (please put your answer in numerical values with no comma or decimal place). If a quantity tax of $0.60 is imposed on M&M Cookie, Muhtarr's after tax optimal consumption of M&M Cookie is and Twix is (please put your answer in numerical values into 1 decimal place with no comma). How much tax revenue do the government collects from the tax on M&M Cookie? (please put your answer in numerical values into 1 decimal place with no dollar sign or comma) Suppose the government decides to combine this tax with a lump-sum subsidy that makes Muhtarr as well-off as he was before the tax. With this new income, how much of M&M Cookie will Muhtarr demand? (please put your answer in numerical values into 1 decimal place with no comma). How much is the subsidy? (please put your answer in numerical values into 1 decimal place with no dollar sign or comma). The substitution effect is and the income effect is (please put your answer in numerical values into 1 decimal place with no dollar sign or comma)

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

Money Banking and Financial Markets

Authors: Stephen Cecchetti, Kermit Schoenholtz

4th edition

007802174X, 978-0078021749

Students also viewed these Economics questions