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Unformatted text preview: f ect of this tax on his optimal consumption? Argue that this is consistent with both goods being normal goods. (d) Suppose that, instead of a lump-tax, the government levies a tax t perunit of good x 1 . What does this do to the individuals budget constraint? Find his new optimal choice as a function of t. Show graphically the income and substitution e f ects of this tax. The graph does not need to be precise but it does need to be consistant with the predictions and our theory. 1...
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- Spring '06