Consider two consumers Anton and Barbara who each have an income of $30 to spend on chocolate bars (x1) and all other goods (x2). The price of a chocolate bar (pre-tax) is $1.50, and the price of all other goods is normalized to $1. However, each person's preferences differ, as follows:

Anton loves chocolate and only ever spends his money on chocolate bars, so UA = x1

Barbara thinks chocolate bars are perfect complements with all other goods, so UB = min{x1, x2} Suppose the government puts a $0.50 tax on chocolate bars. For each person: Find their choices before and after tax. Show these on separate indifference curve/ budget line diagrams. Find the tax each person pays, and show that there is no excess burden from the tax on either person. Why is this? Explain.

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Lets break down each step for both Anton and Barbara 1 Antons Choices Before Tax Budget line equation 150x1 1x2 30 Since Anton only spends on chocolat... View the full answer