Assume you have two goods and a b> 0 income. How does the imposition of a lump-sum tax T, which is imposed on everyone regardless of income or market behavior, affect the budget constraint? a. At (0, b/P2), the budget constraint rotates outwards. b. At (0, b/P2), the budget constraint rotates inward. c. In parallel, the budget constraint shifts inwards. d. In parallel, the budget constraint shifts outwards.
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- The utility function is U(x1x2) = x1(x2 - 2), x1 >= 0, x2 >= 2. The consumer receives a subsidy of 1 m.u. for each unit he buys of the first good while he must pay a 5% tax for the entire value of second good. He is also subject to a 20 m.u. tax for his entire income. Comment the new opt. point, the new budget line and the change in the affordable set. Use I = 500, p= (2 2) as initial values).please only do: if you can teach explain each why convex: The budget set consists of all convex combinations of the points How to know these: can you show each the points can be derive (0, 0), (0, w/p2), (2,(w p1)/p2), and (1 + w/p1, 0). The upper-right boundary of this region consists of two line segments meeting at a kink, with the segment to the left of the kink being flatter than the one to the right. b) how to solve it?A worker earns £15 pounds an hour and chooses to work six hours a day. The worker has noother source of income. For the question below, assume that the worker has “standard” Cobb-Douglas preferences. When considering wage changes, assume that the “income effect”outweighs the “substitution effect”. (a) Write down the worker’s budget constraint and then represent the worker’schoice in a suitably labelled graph. (b) The government gives the worker £80, but taxes the worker’s wage, such thattheir take-home wage is £10. Model this policy in a suitably labelled graph. Isthe worker better off (in terms of utility) after this policy? Note –there are arange of correct answers for the worker’s new hours/income. Choose one thatis consistent with the information given in the question.
- 1. A consumer has income of RM3000. orange juice costs RM3 a glass, and chicken rice costs RM6 a plate. Draw the consumer's budget constraint. what is the slope of this budget constraint. 2. Draw a consumer's indifference curves for orange juice and chicken rice. describe and explain four properties of these indifference curves. 3. Consider your decision about how many hours to work. a) Draw your budget constraint assuming that you play no taxes on your income. on the same diagram, draw another budget constraint assuming that you pay 15 percent tax. b) Show how the tax might lead to more hours of work, fewer hours, or the same number of hours. Explain.A worker receives a wage rate w and has L hours of leisure every day (the total endowment of hours is 24 hours per day). The government gives a subsidy of rate s of her income (i.e. her income is (1+s) times what it would be without the subsidy). The worker cannot save, and initially faces no tax. She consumes a single consumption good, c. 1. Write a budget constraint for this individual and plot it. 2. Suppose that the worker has well-behaved preferences, i.e. she likes more consumption and leisure rather than less, she dislikes working, and she has decreasing marginal utility in consumption and leisure. a. Display graphically what the optimal consumption-leisure choice for this worker (no need for exact numbers as we don’t know the utility function; give intuition) 3. Imagine that instead of a subsidy rate, s, the government imposes income tax at rate t. What is the new budget constraint? Display on the same picture. In the new optimum, is the consumption higher? Explain the answer…Mark can work up to 80 hours each week at a pre-tax hourly wage of $20 but faces a constant 20 percent tax on his earnings. Thus, Mark maximizes his utility by choosing to work 50 hours per week. The government proposes a negative income tax whereby everyone is given $300 per week and anyone can supplement their income further by working. To pay for the negative income tax, tax on earnings will be increased to 50 percent. On a single graph, draw Mark's original budget line and his budget line under the negative income tax. Show that Mark will work fewer hours if the negative income tax is implemented Will Mark's utility be greater under the negative income tax? Discuss your answer.
- Suppose a consumer’s preferences over two goods x_1 and x_2 are given by u = Square root (X_1,X_2). Her income is M and the two goods cost p1 and p2 per unit respectively. a) Derive her utility at the optimal consumption point as a function of prices and income. b) Now suppose the government imposes a proportional tax t on the value of the good x_1 (such as VAT). If the consumer approaches the government for income compensation to remain as well off as before the tax (i.e. compensating variation in income), how much money would she ask for? c) If instead, the government decides to maintain consumer’s utility level not through lump-sum transfer but by introducing a proportional subsidy S on the price of good 2, then what should be the size of the subsidy? d) Based on your answer in part c) discuss how much would it cost for the government to introduce both a tax and a subsidy at the same time? Can you think of any situation when this policy would make sense?Suppose there was a debate regarding how to spend $1 billion in newly found revenues in the budget. Suppose the most liberal Democrat suggests an increase to Food Stamp (SNAP) allotments. Suppose the most conservative Republican suggests an increase in defense spending. The Republican says that, on average, military spending does the most good, so more is better. The Democrat is arguing that the extra food purchased by the extra spending will increase well-being the most. What is going on here? A . Both are employing marginal analysis, just from different perspectives. B. Only the Democrat is using marginal analysis. C. Only the Republican is using marginal analysis. D. Neither are using marginal analysis.In this hypothetical economy, there are two consumers living over two periods of life. Ann’s incomes are $50,000 in both periods. Meanwhile, Bob earns nothing in the first period but $105,000 in the second period. Both of them can borrow or lend at the interest rate r. For simplicity, assume that there are no taxes. a) Assume that both Ann and Bob consume $50,000 in the first period and $50,000 in the second period. Write down the lifetime budget constraint for each consumer then calculate the interest rate r. Describe the economic behavior of each consumer. b) Suppose the interest rate increases. What will happen to Ann’s consumption in the first period? Is Ann better off or worse off than before the interest rate rises? Explain your answer using an appropriate diagram c) What will happen to Bob’s consumption in the first period when the interest rate increases? Is Bob better off or worse off than before the interest rate increases? Explain your answer using an…
- In this hypothetical economy, there are two consumers living over two periods of life. Ann's incomes are $50,000 in both periods. Meanwhile, Bob earns nothing in the first period but $105,000 in the second period. Both of them can borrow or lend at the interest rate r. For simplicity, assume that there are no taxes. a)Assume that both Ann and Bob consume $50,000 in the first period and $50,000 in the second period. Write down the lifetime budget constraint for each consumer then calculate the interest rate r. Describe the economic behaviour of each consumer. b) Suppose the interest rate increases. What will happen to Ann's consumption in the first period? Is Ann better off or worse off than before the interest rate rises? Explain your answer using an appropriate diagram c) What will happen to Bob's consumption in the first period when the interest rate increases? Is Bob better off or worse off than before the interest rate increases? Explain your answer using an appropriate diagram.Consider 2 goods with prices p1 = 4 and p2 = 6, and a consumer with income m = 200. The government imposes a sales tax on good 1. Suppose the sales tax is (a) a quantity tax t = 2 (dollars per unit). (b) an ad valorem tax of 30 per cent (t = 0.3). Compute and graph the consumer’s budget line without a tax, and for the taxes in (a) and (b), respectively.a consumer has income of RM 3,000. Orange Juice costs RM3 glass and chicken rice cost RM6 a palte. Draw the consumers budget constraint and what is the slope of this budget constraint? Draw a consumer's indifference curves for orange juice and chicken rice. describe and explain 4 propeties of these indiffrence curves consider your decision about how many hours to work draw your budget constraint assuming that you pay no taxes on your income. on the same diagram draw another budget constraint assuming that you pay 15 percent tax show how tax might lead to more hours of work, fewer hours or the same number of hours. Explain.