problemset2[1]

problemset2[1] - EC201, Fall 2007, Prof. Jordi Jaumandreu...

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EC201, Fall 2007, Prof. Jordi Jaumandreu Problem set #2 Consumer Theory 1. Suppose a Canadian who lives equally close to gas stations in the US and Canada. Gasoline can be more expensive over time in one country than in the other due to taxes and, sometimes, prices are also the same. How do you expect to be the gasoline-purchasing behavior of this consumer? Answer using an indi f erence curve and a budget line diagram. 2. A person consumes hot dogs only accompanied by buns (one bun with every hot dog). Represent these preferences and discuss the e f ect of an increase in the price of buns on his consumption. 3. What happens to the budget line if the government applies a speci f ctax of $1 per gallon on gasoline but doesn’t tax other goods? What happens to the budget line if the tax applies only to purchases of gasoline in excess of 10 gallons per week? Represent with diagrams. 4. What is the e f ect of a 50% income tax on a consumer budget line and opportunity set? Represent in a diagram.
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problemset2[1] - EC201, Fall 2007, Prof. Jordi Jaumandreu...

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