Question

B. Consider a consumer choosing between two goods, food and gasoline. Suppose her monthly income is...

B. Consider a consumer choosing between two goods, food and gasoline. Suppose her monthly income is $1200 and average price of food per unit is $30. Price of gasoline per liter is $4. Suppose that the government levies a per unit consumption tax on gasoline. The tax rate is set to 20 percent.

(a) Illustrate this change on a new graph with gas on the horizontal axis and explain if the consumer is better/worse off (indicate slope and intercepts)

(b) In this after tax scenario (compared to the before tax scenario), how much the consumer has to give up in terms of expenditures on food, if she wants to consume 100 liters of gasoline? Illustrate on a graph. (5.5 marks) (Hint: expenditures = price × quantity)

(c) In this after tax scenario (compared to the before tax scenario), how much the consumer has to give up in terms of expenditures on food, if she wants to consume 200 liters of gasoline? Illustrate on a graph.

(d) In this after tax scenario (compared to the before tax scenario), what is the maximum amount of expenditures on food that she has to give up, if she wants to consume gasoline? Illustrate on a graph.

(e) What does the lost value that you calculated in part (d) represent. (Hint: Compare with the lost expenditures on gasoline.)

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A consumer allocates all of her income between two goods, food and clothing, with the quantity...
A consumer allocates all of her income between two goods, food and clothing, with the quantity of food consumed captured by the variable F while that of clothing by the variable C. The consumer has usual strictly convex preferences between the two goods. Assume that food is an inferior good and it is kept on the horizontal axis. Suppose that the consumer’s income remains unchanged but prices of both of these goods change. The price changes you need to examine...
Cesar earns $60/week while attending UIC and consumes two goods: Beer (B) and Food (F). Beer...
Cesar earns $60/week while attending UIC and consumes two goods: Beer (B) and Food (F). Beer costs $1/can and Food costs $3/lb. Cesar has the utility function U(B,F) = 2BF (with B in cans, F in lbs). This means his marginal utility from consuming beer is 2F and the marginal utility of consuming food is 2B. Question 3: The price of food drops to $1/lb. How much food does Cesar now consume each week? Question 5: What is the size...
Consider an individual making choices over two goods, x and y with prices px = 3...
Consider an individual making choices over two goods, x and y with prices px = 3 and py = 4, and who has income I = 120 and her preferences can be represented by the utility function U(x,y) = x2y2. Suppose the government imposes a sales tax of $1 per unit on good x: (a) Calculate the substitution effect and Income effect (on good x) after the price change. Also Illustrate on a graph. (b) Find the government tax revenues...
Total utility can be objectively measured in numbers that indicate usefulness or benefit to the consumer....
Total utility can be objectively measured in numbers that indicate usefulness or benefit to the consumer. ____ 2. Consumers should purchase quantities of a good to the point where MU > P. ____ 3. Voluntary exchange requires that there must be mutual gain. ____ 4. Points along a budget line represent the maximum combinations of two commodities that a consumer can afford. ____ 5. The budget line represents a consumer's preferences for a commodity. ____ 6. A change in consumer...
Chick-fil-A is dominating the U.S. fast-food market. Whereas McDonald’s, Subway, Burger King, and Taco Bell trudge...
Chick-fil-A is dominating the U.S. fast-food market. Whereas McDonald’s, Subway, Burger King, and Taco Bell trudge along at the top of the heap, Chick-fil-A has quietly risen from a South- east regional favorite to become the largest chicken chain and the eighth-largest quick-service food purveyor in the country. The chain sells significantly more food per restaurant than any of its competitors—twice that of Taco Bell or Wendy’s and more than three times what the KFC Colonel fries up. And it...
2. A demand curve indicate a. the maximum willingness to pay for a given quantity b.the...
2. A demand curve indicate a. the maximum willingness to pay for a given quantity b.the consumer's gain from exchange c.the market price of a good or service d. the equilibrum quantity 3. trade permitts countries to a. consume more than they capable of producing b.produce based on their comparative advantage c.specialize more fully d.all of above 4. which of the following dose not impact how elastic supply is? a. whether the supply is local or global b.the share of...
Juanita is deciding whether to buy a skirt that she wants, as well as where to...
Juanita is deciding whether to buy a skirt that she wants, as well as where to buy it. Three stores carry the same skirt, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $129 for the skirt: Store Travel Time Each Way Price of a Skirt (Minutes) (Dollars per skirt) Local Department...
Read the following case carefully and then answer the questions. In the movie Face/Off, John Travolta...
Read the following case carefully and then answer the questions. In the movie Face/Off, John Travolta got a new look by exchanging faces with Nicolas Cage. Unfortunately, he got a lot of trouble along with it. John could receive a much less troublesome new look by using Botox, a treatment discovered by Vancouver’s Dr. Jean Carruthers, who came upon the cosmetic potential of Botox in 1982 while treating a woman with eye spasms. Botox is marketed by Allergan, a specialty...
Fueling Indonesians: Window of Opportunity or Regret? Kerosene is widely used as cooking fuel by Indonesian...
Fueling Indonesians: Window of Opportunity or Regret? Kerosene is widely used as cooking fuel by Indonesian households, with an annual usage of 10 million Kiloliters. It is a major subsidized fuel for household cooking, where its usage is over sixty percent of the 230 million population. The subsidy program costs the government heavily, where it amounts up to U.S.$4 billion a year. As the practice tends to bleed government expenditures quite heavily, the Indonesian government is embarking on a change...
1. In which phase of the business cycle is the U.S. economy currently in? ________________. How...
1. In which phase of the business cycle is the U.S. economy currently in? ________________. How many months has the U.S. economy been in this stage of the business cycle? ___________ months 2. How long has the current expansion/recovery lasted to date? _________________ How does this compare to the average length of U.S. recessions since 1854? ______________________________. 3. What do the last four recoveries/expansions (that is, the current recovery/expansion and the previous three recovery/expansions), suggest about a new trend in...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT