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 faces prices and
has an income of $ Compute the effect of an infinitesimally small increase in
income on the consumer's maximized utility. Hint: Lagrange multiplier.
Consider the consumer in Suppose a tax of $ per unit is imposed on the
consumption of
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.
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