hw2 - Homework Assignment # 2 Econ 121b. Intermediate...

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Homework Assignment # 2 Econ 121b. Intermediate Microeconomics due January 26, 2011 (in class) 1. (a) Show, using a revealed preference argument, that an income tax is always better than a commodity tax: for every commodity tax t (levied, say, on good 1), there is an income tax that raises at least as much revenue as the commodity tax t and yields the consumer a higher utility level. (Hint: We did this in class (and it is also explained in the book)!) (b) Show that the revealed preference argument does not work when we try to show the converse to part (a) above. That is, we cannot apply the reasoning above to show that for each income tax I there is a commodity tax that raises the same revenue as the income tax I and leaves the consumer with a higher utility. Explain what goes wrong. (Note: An explicit example is constructed in Problem 2 below. Here you are only asked to explain what goes wrong in the revealed preference argument.) 2. Consider a consumer whose utility function is given by
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This note was uploaded on 03/01/2012 for the course ECON 121 taught by Professor Samuelson during the Spring '09 term at Yale.

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hw2 - Homework Assignment # 2 Econ 121b. Intermediate...

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