4. A. A consumer has $360. Good X costs $4 each. Good Y costs $8 each....

4. A. A consumer has $360. Good X costs $4 each. Good Y costs $8 each. Draw the budget line. Label it “budget line

A.” Preferences are perfect complements: utility = min{X,Y}. Both X and Y are normal goods. Numerically solve the consumer’s budget choice. Label it on the diagram, including the indifference curve, and all solved numbers. 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 the consumer’s budget choice. Label it on the diagram, including the indifference curve, and all solved numbers. C. Herman Cain ran for president in the year 2000. He made the following policy proposal: Reduce the federal income tax, and make up the federal revenue shortfall with a new national sales tax charged, in addition to the state and local sales tax. Total federal tax revenue would be unchanged. Herman Cain stated that the average person would be better off. Use the objective of the consumer (utility maximization, as illustrated in parts A and B) to explain and evaluate if Herman Cain was right or wrong.

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Rahul Sunny answered 1 year ago

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