22 Jul WHAT IS THE CONSUMERS OPTIMAL CONSUMPTION BUNDLE AS A FUNCTION OF PRICES P1 AND P2 AND WEALTH M?
What is the c Show more Suppose a consumers utility function is given by u(q1 q2) = q1 q2. (a) What is the consumers optimal consumption bundle as a function of prices p1 and p2 and wealth M? (b) Solve for the consumers indirect utility function. If p1 =2p2 =3M=18. (c) What is the consumers consumption bundle and indirect utility? (d) Suppose the government sets a $1 per unit tax on good q1 such that p1increasesto $3. Whatistheconsumersnewconsumptionbundle and indirect utility and how much tax revenue is raised? (e) Howmuchwouldthegovernmentneedtocompensatetheconsumer if it wanted to return the consumer to her original utility (what is the CV)? Show less
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