Unformatted text preview: following: Result 1 If preferences are additive separable, necessities should be taxed more than luxuries. Example : U ( c 1 ,c 2 ,l ) = log( c 1 ) + log( c 2-¯ c )-v ( l ) 1.2.2 Quasi-linear utility function Consider the utility function in the previous section and assume that v ( l ) = l . Then there is no income eﬀect and using income elasticities for guiding us about optimal taxes is not useful. However, we use price elasticities. Consider again the FOC of consumer U i ( c i ) = p i φ 7...
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This note was uploaded on 12/10/2011 for the course MAT 121 taught by Professor Wong during the Fall '10 term at SUNY Stony Brook.
- Fall '10