hw3 - Homework Assignment # 3 Econ 121b. Intermediate...

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Homework Assignment # 3 Econ 121b. Intermediate Microeconomics due February 2, 2011 (in class) Please put your discussion-section time and TA’s name on your answer. 1. Suppose the consumer’s utility function is given by u.x 1 ;x 2 / D x 1 x 2 2 . As usual, his budget constraint is p 1 x 1 C p 2 x 2 D m . To be concrete, suppose p 1 D p 2 D 10 and m D 90 . (a) Suppose the government places a 50 % ad valorem tax on good 1. Write the new budget constraint, given the tax. Identify the utility maximizing bundle x 1 and x 2 for the consumer, the amount of tax revenue collected by the government, and calculate the consumer’s utility at the optimum. (b) Now suppose instead the government places a 20 % ad valorem tax on good 2. Write the new budget constraint, given the tax. Identify the utility maximizing bundle x 1 and x 2 for the consumer, the amount of tax revenue collected by the government, and calculate the consumer’s utility at the optimum.
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hw3 - Homework Assignment # 3 Econ 121b. Intermediate...

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