Reference no: EM132136739

Question: 1) Assume you have two goods: food and beverage with a monthly income of $100. The price of food (Y axis) is $20 and the price of beverage (X axis) is $10. Graph the model (i.e. set the intercept terms) and correctly label the graph. Now on the same graph illustrate a change in the price of beverage to $5 per unit.

2) Graphically illustrate a per unit tax imposed on the seller of a product. Identify the welfare loss and the portion of the tax paid by the buyer and the seller.

3) Beginning in a state of equilibrium in our consumer equilibrium model (food is situated on the Y-axis and beverage on the X-axis). Graphically illustrate the income and substitution effect from a fall in the price of beverage (ceteris paribus) when beverage is a normal good. Label clearly.