+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
Suppose the federal government is considering an air quality policy initiative that would effectively increase abatement (A) of ozone from 10 percent to 20 percent and that
Alice goes to the store and purchases $135 worth of groceries. Given these expenditures and holding everything else constant, what is Alice's contribution measured in dollars
Explain the concepts of consumer surplus and producer surplus, and then use these to demonstrate that a price ceiling is less efficient than equilibrium in a supply and dema
Discuss a provider's ability to influence patients-as consumers of health care-and their decisions. How are providers responsible for patient decision making? How do providers
Governmental sources (public programs) and private payers are just a few examples regarding sources of health care revenue. Medicare, Medicaid, and managed-care programs are
What are the current implications of high energy costs in the information sector and what is the potential significance of using cloud computing technologies to lower energ
a. Good Ais an inferior good and Goods A and B are substitutes. b. Good Ais an inferior good and Goods A and B are complements. c. Good Ais a normal good and Goods A and B are
Recently, Pfizer and Warner-Lambert agreed to a ninety billion dollar merger, thus creating one of the world's biggest pharmaceutical firms. Pharmaceutical firms tend to expen