If Danny has an income of a hundred dollars to spend on food. (burgers=x, soup=y) the price of burgers is p1=1 per unit and the price of soup is p2=2 per unit. there is a tax on burgers changing the price of burgers to 1+t. Danny's utility function is u=x+y

a)what is Danny's ordinary demand before and after the tax (express after tax in a function of t and the total change in her demand as a function of t)

b) for any value of t, what is the expression for both the income and substitution effects (from p1=1 to p1=1+t). list the Slutsky decomposition for the total change in demand.

Answer rating: 100% (QA)

Solution a Before the tax Dannys demand for burgers and soup is given by x 100 1 2 50 y 100 1 ... View the full answer