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(15) A representative consumer’s utility is given by: U=min⁡(2X, Y). Income is 2400. The prices are:...

  1. (15) A representative consumer’s utility is given by: U=min⁡(2X, Y). Income is 2400. The prices are: PX=2, PY=1. X is the consumption of gasoline and Y is the consumption of composite good.
    1. (3) Write the budget constraint. Compute the optimal consumption bundle.
    2. (4) Now the government imposes 100% tax on the consumption of gasoline. Write the new budget constraint. Compute the optimal consumption bundle.
    3. (4) Now, in addition to the tax in part (B), suppose that the government gives the income tax rebate, R, to relieve the tax burden. Write the new budget constraint. Compute the optimal consumption bundle as a function of R.
    4. (4) (Continuing part (C)) Now the government wants to balance the budget. Then what should be the amount of rebate? Compare the gasoline consumption here with that in part (A).
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