Question

S pose you can work anywhere from 0 to 24 hours a day at age of 10 hour. You et of 50% on all income over 550 per day (the first 550 per day ist edYou choose work 10 hours a day. Draw your budget constraint along with the indifference curve that shows your o p in (b) Suspose the tax law is changed so that ALL income is now subject to a 25tax. Do you now more or less than 10 hours? Does the government collect more or less tax revenue than before Show your work on the diagram (c) Which one do you prefer? The old tax law or the new one? Show and explain why 2. If the price of eggs were to double from St per certo $2 percre Be would consume 6 fewer with changing his consumption of other goods. Which would he prefer: The price increase, or long 557? Use a diagram to explain (You'll need geometry more than anything else!) Once you solve the geometry try to explain your finding intuitively.

just number 2 please.

Answer 1

2) budget constraints,

Let x is egg quantity and y is other good quantity,

I=px*X+py*Y

Px*X=I-Py*y

X={I-py*y)/px

Px=1

X={I-py*y)

Px=2

X=(I-py*y)/2=0.5(I-py*y)

So

(I-py*y)-0.5(I-py*y)=6

0.5 (I-py*y)=6

(I-py*y)=12

So initially ( before price increase ) ben was consuming 12 eggs.

Date Dare budget X Prie the seas Hibudget live/36 7osing) 6 12

budget X Price the seas - IC3 - 162 lial A budget line 86 Tosing 6 12

If ben lose 6$ and still spend same amount on other good then he will still get only 6 egg with same price of x=1$.

New budget line ( with price increase) is tangent with IC1 But new budget line( with 6$ loss) is tangent with a higher level of indifference curve( IC2).,so ben ben prefer loss of 6$ instead of price rise.to MAXIMIZE his utility