Calculate the optimal quantities of barley and corn

Assignment Help Business Economics

Reference no: EM13840182

The utility function of a consumer is given by U = log(b) + log(c) where b and c are the consumption levels of barley and corn. Assume that the price for both goods is $1 and that the consumer has an income of $100. Assume that the government introduces unit taxes of $1 on barley and corn such that the after-tax price for barley and corn is $2 (hence, the consumer bears the economic incidence of the tax).

Calculate the optimal quantities of barley and corn both before and after the implementation of the tax.

Use the inverse elasticity rule to conclude that both goods should be subject to the samelevel of tax. (Hint: calculate the elasticities at the equilibrium before the tax)

Calculate the unit tax required to obtain a level of revenue of R = 60 using the fact that the demand for barley (corn) is given by b = 50/(1+tb) (c=50/(1+tc)).

Reference no: EM13840182

Questions Cloud

Nutrition evaluation project : Nutrition Evaluation Project

How much is imported in barrels of oil and value per year : US imports oil at the world price, $55 per barrel. The domestic supply curve in barrels per day is S = 2500000 + 250000P with P in dollars. Domestic demand curve is D = 70,000,000 - 500000P. Draw the US demand and supply curves for oil and indicate h..

Is bank running optimal mix of newspaper and magazine ads : The first national bank received 3,000 inquiries following the latest advertisement describing its 30-month IRA accounts in the Boston World, a local newspaper. Assuming that additional ads would generate similar response rates, is the bank running a..

Variables contained in the harrod-domar growth model : After reading about the Solow growth model, which concludes that continued economic growth requires continual innovation, and Schumpeter’s dynamic growth model, does the combination of these two models provide an adequate model of technological chang..

Calculate the optimal quantities of barley and corn : The utility function of a consumer is given by U = log(b) + log(c) where b and c are the consumption levels of barley and corn. Assume that the price for both goods is $1 and that the consumer has an income of $100. Calculate the optimal quantities o..

Demonstrate understanding of wireless networks terminology : demonstrate your understanding of wireless networks terminology and technology and planning and performing a basic POE wireless network design.

Identify main reasons apple has expanded into other markets : Identify the main reasons (eg.) Apple has expanded into other markets. Identify the entry mode/s of Apple in the specific foreign market (Europe).

Patients with cystic fibrosis need extra : Patients with cystic fibrosis need extra

The financial records of the partnership : The equipment has a book value of $13,000 and a net agreed-on value of $16,000. In the financial records of the partnership, this equipment and its accumulated depreciation should be recorded.

User Account

All Pages