Suppose a general form of Douglas utility function is as 1 2 1 2 ( , ) c d u x x x x . After doing

necessary calculation from the given data the specific form of the function is as

0.35 0.65

1 2 1 2 u(x , x ) x x . The governments have variety of tools to generate revenue and along

with subsidy policies to the consumer. Calculate the utility in case of government

actions as described from number 6 to number 10. Also compare your results with

tenure 5 and comment what happened with the overall well being of the consumers

after imposition of certain decisions by the Government in comparison with tenure 5.

Apply all the actions on Year 5

Year Effects of 1P 2P m 1X 2 X c d U

1 10 15 4000 0.65

2 11.5 16 4500 0.65

3 11 17 4700 0.65

4 12 16.5 4500 0.65

5 11.5 18 5000 0.65

6 15% Q-tax on good 1

7 25% Subsidy on good 2

8 25 % Lump-sum tax

9 15% QT + 25% S + 15% LS tax

10 20% QT + 15% S + 15% LS tax

11 15% QT + 15% S + 0% LS tax

12 0% QT + 15% S + 15% LS tax

1. If Government imposes 15% Quantity tax on good 1.

140 173.3 0.35 161

0.35

0.35

0.35

0.35

137 183 165.4

150 180 169

131.25 177.3 160

152.2 181 170.3

2. If Government gives 25% subsidy on good 2.

3. If Government imposes 25% Lump-sum tax.

4. If Government imposes 15% Quantity tax on good 1; gives 25% subsidy on good 2; and imposes 15% Lump-sum tax as well.

5. If Government imposes 20% Quantity tax on good 1; gives 15% subsidy on good 2; and imposes 15% Lump-sum tax as well.

6. If Government imposes 15% Quantity tax on good 1; and gives 15% subsidy on good 2.

7. If Government gives 15% subsidy on good 2; and imposes 15% Lump-sum tax.