. Examine the validity of the following statements, giving reasons: (a) Suppose that an individual's budget...
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. Examine the validity of the following statements, giving reasons: (a) Suppose that an individual's budget constraint is given by p1x1 + p2x2 = m in period 1 (where symbols have their usual meaning). In period 2, he is provided a lump-sum subsidy, S. Also, in that period, an ad- valorem (i.e., per-unit) tax of t is imposed on good 1 as well as on good 2. If m = 20, S = 7.5, t = 0.25, then this individual will be better off in period 2. (b) If good 1 is a neutral good while good 2 is a desirable good, then the indifference map will be a set of negatively-sloped straight lines that are parallel to each other. (c) The utility function given by V = x12 + x2 2 represents a monotonic transformation of the utility function, U = x1 2 + x2 ½. . Examine the validity of the following statements, giving reasons: (a) Suppose that an individual's budget constraint is given by p1x1 + p2x2 = m in period 1 (where symbols have their usual meaning). In period 2, he is provided a lump-sum subsidy, S. Also, in that period, an ad- valorem (i.e., per-unit) tax of t is imposed on good 1 as well as on good 2. If m = 20, S = 7.5, t = 0.25, then this individual will be better off in period 2. (b) If good 1 is a neutral good while good 2 is a desirable good, then the indifference map will be a set of negatively-sloped straight lines that are parallel to each other. (c) The utility function given by V = x12 + x2 2 represents a monotonic transformation of the utility function, U = x1 2 + x2 ½.
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a The budget constraint is the boundary of the opportunity set all possible combinations of consumpt... View the full answer
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