Would this influence his attitude towards work and leisure

Reference no: EM13187256

A consumer chooses weekly quantities of X and Y in order to maximise the utility function
U = X^2/3 Y^1/3
Total income over the week is £100, and the prices X and Y are £5 and £10 respectively.

a) How much of X and Y will the consumer buy
b) What happens to the demand for X if the price of X rises to £10?
c) What happens to the demand for Y if the price of X rises to £10?
d) What is the equivalent variation resulting from the increase in the price of X from £5 to £10?
e) What is the compensating variation resulting form the increase in the price of X from £5 to £10?
f) What would be the impact on consumer surplus

It is generally accepted that a fall in the price of a particular brand of a good could lead to less of it being demanded. Where the good in question has but two attributes: attribute 1 and attribute 2. Using Lancaster's characteristics theory in either car or soft drink industry examine:

a) Could fall in price lead to fall in demand in these industries if the two attributes were substitutes for each other?
b) Must it happen if they are complements?

An individual is known to increase the hours per week he works when his non-wage income is decreased.

Explain by using diagrams what will happen to hours he works if:

a) A proportional income tax is levied on his wage income.
b) Would this influence his attitude towards work and leisure?
c) A proportional income tax is levied on his total income.
d) Would this influence his attitude towards work and leisure?

Reference no: EM13187256

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