ECON201B 2006 PS5 - Economics 201B 2nd Half - Spring 2006...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Problem Set 5 Economics 201B 2nd Half - Spring 2006 Due Thursday, 27 April in Lecture 1. In this problem, we will investigate what happens to welfare properties and existence of equilibria in the presence of taxes. So consider an exchange economy with I consumers and L goods, in which each consumer has preferences i that are strongly monotone, continuous, and strictly convex. Each consumer also has a strictly positive endowment of each good; i.e., ! i >> 0 8 i . The government exogenously imposes a system of taxes such that consumption of each good is taxed at a rate that depends both on the consumer and the good being purchased. That is, if consumer i consumes a quantity x li of good l , then the consumer will pay a tax of t li p l x li . Assume t li > 0 8 l; i . The tax revenues are then redistributed lump-sum equally across all consumers. A competitive equilibrium with taxes in this economy is therefore a price vector p and an allocation x such that each x is in the demand set for each consumer and all markets clear. (a) Write down the budget set for a typical consumer in this economy.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

ECON201B 2006 PS5 - Economics 201B 2nd Half - Spring 2006...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online