+1-415-670-9189
info@expertsmind.com
Effects income tax and excise tax have on consumer utility
Course:- Microeconomics
Reference No.:- EM13700099




Assignment Help
Assignment Help >> Microeconomics

Consider the utility-maximizing model in a two-good world, where our representative consumer has well-behaved preferences that result in smooth indifference curves that are convex to the origin. Place good one on the horizontal axis. (Assume I=$120 and P1=$3 and P2=$4 a. Illustrate utility maximization where the consumer purchases positive quantities of both goods. b. Show the effect a $2 excise tax levied on good one has on the consumer’s utility-maximizing bundle (assume the $2 tax results in a $2 increase in price). c. Assume consumers purchase 10 units of good one with the $2 excise tax. Rather than imposing the excise tax, the government could levy a $20 income tax, and raise the same tax revenue. Compare the effects the income tax and the excise tax have on the consumer’s utility. Under which plan (excise or income tax) is utility higher? Provide a graph and explain your finding. d. Compare your answer in part c, with the case where goods one and two are perfect complements. Illustrate and explain your answer.




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Microeconomics) Materials
1) Florida citrus mutual, an agricultural cooperative association for citrus growers in Florida, needs to predict what will happen to the price and output of Florida oranges u
Consider a market characterized by the following inverse demand and inverse supply functions: Inverse Demand: P = 10 - 2Qd Inverse Supply: P = 2 + 2Qs. Find the equilibrium pr
A successful man make a donation to his Sister for building a new store and upgrading shops, as well as for establishing a store fund. The donation is planned to be spent as f
But before the Fed can act, the presidents chief economic advisor holds a press conference and states that the Fed should ease its policy to stimulate the economy. Does this
Assume that we have a economy with no government and no capital investment that is closed to the outside world.draw a simple circular flow diagram with just firms:downstream
When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. What is the price elasticity
Think of a business firm you recently visited (such as Walmart, Home Depot, Red Lobster, Barnes & Noble, McDonald's, etc.). What motivated the producers of all the individua
Suppose there are two straight lines: line A and line B. Line A's slope is equal to 2 and the point (X, Y) = (10, 20) sits on this line. Line B has a y-intercept of 10 and a