Multiple choice question The explanation for this problem will require some algebra. Consider the effects of...
Multiple choice question
The explanation for this problem will require some algebra.
Consider the effects of
the following changes in product prices and money income on Perry's
welfare:
I. A sales tax of 25 percent on goods X and Y, the only two goods
in the economy.
II. A 20 percent tax on income.
Choosing between the two budget lines, Perry would prefer
a. I
b. II
c. I, only if Perry's indifference curves are relatively steep with
respect to the X-axis
d. I, only if Perry's indifference curves are relatively steep with
respect to the Y- axis.
e. neither I nor II; Perry would be indifferent between the two
Show algebra behind your answer..
Homework Answers
Answer is option E)
In both options, the budget constraint shifts inwards by same magnitude, hence Perry will be indifferent between two options
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