Question

Problem 1 You have an income of $50 to spend on two commodities. The price of commodity 2 is constant at $1. Assume that whatever you purchase, you must consume 1. The price of commodity 1 is $2 for the first 15 units, but $1 for each additional unit exceeding 15. Draw the budget set. 2. Suppose now that the price of good 1 is constant at $2. The government taxes $2 per unit on commodity 1 and 5% per price on good 2. Write down your new budget equation. 3. Suppose now that the price of good 1 is constant at $2 and the governement taxes $2 per unit of commodity 1. The government wants to introduce an ad valorem tax on good 2, so that the opportunity cost of good 1 in terms of good 2 is 3. What should this tax on good 2 be? Write down the new budget equation 4. Suppose now that the price is constant ($1 for commodity 2 and $2 for commodity 1) and there are no taxes, but you face a time constraint. Consuming one unit of good 1 takes 30 minutes, and one unit of good 2 takes one hour. You have 24 hours to consume both. Draw the budget set HINT: Don't forget to include both moneyy constraint, and time constraint

Answer 1

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