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Unformatted text preview: Suppose the price of books is $40 and the price of clothing is $25. (a) Show Joans budget constraint in a diagram. Identify the slope and intercepts of this budget constraint. (b) Senator Green has proposed placing a $10 tax on each book a consumer purchases. Show Joans budget constraint under the Green proposal in your diagram. Identify the slope and intercepts of this budget constraint. (c) Senator Smith has offered an alternative to the Green bill. Under the Smith proposal, the government would offer a $5 subsidy for each unit of clothing a consumer purchases, would not tax books, but would impose a 20 percent tax on income. Would Joan prefer the Green proposal to the Smith proposal, would she prefer the Smith proposal to the Green proposal, or would she be indifferent between the two proposals?...
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This note was uploaded on 09/25/2011 for the course BMGT 220 taught by Professor Bulmash during the Spring '08 term at Maryland.
- Spring '08