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Unformatted text preview: Q= 2 p . The government imposes a specific tax of t=1 per unit. What would be the equilibrium? What effect does the tax have on consumer surplus, producer surplus and deadweight loss? Sketch a graph. 7. Two individuals, Fred and Ray, in an economy with no production, each have the utility function U= 10 XY . Prices of both X and Y are set at $1. Initial endowments for Fred are 10 units of X and 6 units of Y . Ray has 8 units of X and 12 units of Y . Show that this endowment is not on the contract curve. 8. Suppose Adam and James both regard peanut butter and jelly as perfect complements at a 1:1 ratio. Show using an Edgeworth box diagram that if Adam receives 10 peanut butter and no jelly, and James receives 10 jelly and no peanut butter, after trading, where will they end up?...
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- Winter '07