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Practice Problem 3

# Practice Problem 3 - ad valorem tax Do the same for a...

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Practice Problem Set # 3 Textbook: Read the appendixes for Chapter 4 and 5 5.3 5.5 Workbook: 5.1 5.3 5.5 Additional problem: a. Consider a consumer whose utility function is U(x; y) = xy The consumer face prices for x and y of 2 and 4, respectively. The consumer has an income of 80. Derive the consumer’s choices of x and y. b. Explain how the imposition of a quantity tax changes a consumer’s budget constraint. Do the same for an
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Unformatted text preview: ad valorem tax. Do the same for a lump-sum tax on income. c. Draw the budget constraint for a consumer who faces a price for good x 1 of 2 per unit if the number of units is less 10 and a price of 4 per unit if the number of units is 10 or more....
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