(15) A representative consumer’s utility is given by: U=min
(2X,Y). Income is 2400. The prices are: P_X=2,P_Y=1. X is the
consumption of gasoline and Y is the consumption of composite
good.
(3) Write the budget constraint. Compute the optimal
consumption bundle.
(4) Now the government imposes 100% tax on the consumption of
gasoline. Write the new budget constraint. Compute the optimal
consumption bundle.
(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) (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).