Question

Since consumers' utility depends on their income and prices of goods and services, critically analyze the theoretical notion that a general income tax or subsidy to individuals generates higher utility maximization than the same tax or subsidy on specific products or services.

Answer 1

Consumer is a person who consumes the commodity for the satisfaction of his wants.
Utility means the want satisfying power of the commodity and it is true that it depends upon the income and the price of the goods and services.
The utility is depends on the income of the consumer because when the income increases then it raises the demand of the consumer and as the demand increases the utility also increases so there is a direct relationship between income of the consumer and the income of the consumer.
The price of the commodity also effect the utility of the consumer because as the price of the commodity increases then the demand of that commodity will decreases and it will reduces the utility of the consumer. So in this case there is an inverse relationship between price of the commodity and the utility.
So here there are two cases:
Case 1- when there is an increase in the income tax subsidy, then in this case the consumers purchasing power will increase and it will create the rise in the demand of the commodity and it also increases the utility of the consumer.
Case 2- when there is a subsidy on a particular goods or services then it is cheaper for the consumer to purchase then in this case the consumers demand and utility will also increases.