initially ,budget line was C0 B0 with IC0 IC curve equilibrium at point a
with increase in taxes in barely , price of barely increases . Budget line will rotate leftward to C0 to B1 because with fixed income consumer will buy less of barely .
new equilibrium will be at point b , buying less of barely and same quantity of corn .
there will be no excess burden of income tax . Rather , consumer will buy less of barely
Question 7 (20 points) 7.1 (15 points) Suppose a person has a fixed income which is...
(20 points) Suppose the government wishes to tax a utility maximizing consumer to obtain a certain amount of tax revenue. A utility maximizing consumer has utility function ?(?, ?) = √? + ?. The price of ? is $1, the price of ? is $4 and the consumer’s income is $120. (a) Suppose the government imposes sales tax ? = 1 on good ? per unit. What is the optimal consumption for good ? and good ? for the consumer...