Assume that a consumer consumes two goods (X and Y ). Refer to the Lump Sum Principle of Taxation and Subsidy, please show that an income grant to the consumer provides more utility than does a subsidy on good X that costs the same amount to the government. Suggestion: 1) You may use the Cobb-Douglas utility function for your illustration. 2) You should draw a graph to show your proof. 3) You may explain the graph with or without a calculation. You are free to set all the math functions needed in the case of using calculation.
Assume that a consumer consumes two goods (X and Y ). Refer to the Lump Sum Principle of Taxation and Subsidy, please show that an income grant to the consumer provides more utility than does a subsidy on good X that costs the same amount to the government. Suggestion: 1) You may use the Cobb-Douglas utility function for your illustration. 2) You should draw a graph to show your proof. 3) You may explain the graph with or without a calculation. You are free to set all the math functions needed in the case of using calculation.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter6: Supply, Demand And Government Policies
Section: Chapter Questions
Problem 5QR
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2. Assume that a consumer consumes two goods (X and
Y
). Refer to the Lump Sum Principle of
X
that costs the same amount to the government. Suggestion: 1) You may use the Cobb-Douglas utility function for your illustration. 2) You should draw a graph to show your proof. 3) You may explain the graph with or without a calculation. You are free to set all the math functions needed in the case of using calculation.
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