ECON 2300 Study Guide - Sport Utility Vehicle, Kraljevi Ulice, Pizza Pizza
30 Jun 2014
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Further, assume that i = 100 (income), px = 1 (price of x), and py = 1 (price of y). If i increases, what happens to your consumption? (10 points: consider the following utility functions: (i) u = min[x, y] and (ii) lexicographic preference. Decompose the total price e ect into substition e ect and income e ect. Identify substitution e ect and income e ect in your diagrams. (20 points: short questions: (40 points; 10 points each, suppose that the government imposes sales tax (t dollars/per unit) on x. For whatever reason, this tax is returned to the consumers in the form of lump-sum payment. Note that the rebate is based on the nal consumption of x after tax is imposed. Analyse by using a diagram: to promote sales, pizza pizza introduces two programs and you can choose either one to pay for your purchase.
