Question: A consumer with the utility function U ( x 1 , x 2 ) = x 1 2 x 2 3 faces prices p 1

A consumer with the utility function U(x1,x2)=x12x23 faces prices p1=4,p2=5 and
has an income of $200. Compute the effect of an infinitesimally small increase in
income on the consumer's maximized utility. Hint: Lagrange multiplier.
Consider the consumer in (2). Suppose a tax of $1 per unit is imposed on the
consumption of x1.
a. How much tax revenue would be raised as result?
b. What is the consumer's utility level after the tax?
c. If the same tax revenue was raised via a lumpsum income tax, leaving prices
unchanged, compute the consumer's utility level after the lumpsum tax.
 A consumer with the utility function U(x1,x2)=x12x23 faces prices p1=4,p2=5 and

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