Lea's utility function is U =0.7 ln( x ) + y where x denotes her consumption of good X and y denotes her consumption of good Y. Suppose the government imposes a per-unit tax on good X equal to 5 dollars. The price of good X charged by the sellers of good X is Px = 9 (and does not change due to the tax), the price of good Y is Py = 13 and Lea's income is M = 389. What is Lea's own-price substitution effect of the price increase due to the tax ?
Lea's utility function is U =0.7 ln( x ) + y where x denotes her consumption of good X and y denotes her consumption of good Y. Suppose the government imposes a per-unit tax on good X equal to 5 dollars. The price of good X charged by the sellers of good X is Px = 9 (and does not change due to the tax), the price of good Y is Py = 13 and Lea's income is M = 389. What is Lea's own-price substitution effect of the price increase due to the tax ?
Chapter5: Income And Substitution Effects
Section: Chapter Questions
Problem 5.5P
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Lea's utility function is
U =0.7 ln( x ) + y
where x denotes her consumption of good X and y denotes her consumption of good Y.
Suppose the government imposes a per-unit tax on good X equal to 5 dollars. The price of good X charged by the sellers of good X is Px = 9 (and does not change due to the tax), the price of good Y is Py = 13 and Lea's income is M = 389.
What is Lea's own-price substitution effect of the price increase due to the tax ?
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