B. A consumer has $400. Good X costs $6 each. Good Y costs $7 each. Draw a new budget line, on a new graph. Label it
Posted: Sun Jul 03, 2022 6:50 am
B. A consumer has $400. Good X costs$6 each. Good Y costs $7 each. Draw a new budget line,on a new graph. Label it “budget line B.” Once again,preferences are perfect complements: utility =min{X,Y}. Both are normal goods. Numerically solve theconsumer’s budget choice. Label it on the diagram, includingthe indifference curve, and all solved numbers.
C. Herman Cain ran for president in theyear 2012. He made the following policy proposal: Reduce the federal income tax, and make up the federal revenueshortfall with a new national sales tax charged, in addition to thestate and local sales tax. Total federal tax revenue would beunchanged. Herman Cain stated that the average person wouldbe better off. Use the objective of the consumer (utilitymaximization, as illustrated in parts A and B) to explain andevaluate if Herman Cain was right or wrong.
C. Herman Cain ran for president in theyear 2012. He made the following policy proposal: Reduce the federal income tax, and make up the federal revenueshortfall with a new national sales tax charged, in addition to thestate and local sales tax. Total federal tax revenue would beunchanged. Herman Cain stated that the average person wouldbe better off. Use the objective of the consumer (utilitymaximization, as illustrated in parts A and B) to explain andevaluate if Herman Cain was right or wrong.