DOC PREVIEW
Berkeley ECON 100A - HW 2: Consumer Theory

This preview shows page 1 out of 2 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 2 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 2 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

Econ 100A HW 2: Consumer Theory Spring 2003 Due in section on February 18 or 19 1. Suppose the government limits the number of gallons of gasoline consumers can buy per week. Does this affect consumers’ consumption and well being? Use graphs to illustrate your answer and explain in words. 2. Max views coffee and cream as perfect complements. A. Derive his demand curve. B. Derive his Engel curve. 3. Prior to 1979, recipients bought food stamps at a subsidized rate. Suppose that an individual is given $100 worth of food stamps per month and can buy up to another $100 of food stamps at a price of 50¢ per $1 food stamp. Graph the individual’s budget constraint and write the formula for it. Compare the individual’s opportunity set to what it would be if (A) the individual received $200 in food stamps (i.e., did not have to buy the second $100 at discount), or (B) received $200 in cash. 4. The government considered a large specific tax, t, per gallon of gasoline when President Clinton first took office. Realizing that such a large tax would strain the budgets of many families, the government considered making unrestricted lump-sum cash payments to poor families to help them pay for these new gas taxes. Suppose the lump-sum payment is equal to the tax a poor family paid for gasoline if they buy as much gas as they bought before the tax. How does this family's behavior change? Are they better off, worse off, or as well off as before? [Hint: Show how the answer depends on their tastes.] 5. James works two jobs (moonlights). He works 8 hours a day (the maximum he is allowed to) on the high-paying job with wage w1. He works 4 more hours at his second job that pays w2 < w1. If the government starts collecting a 10% tax on wage earnings, how will James change his behavior? Answer formally using a labor-leisure choice diagram. [You should consider how your answer depends on his tastes.] 6. Suppose a consumer has a utility function U(B, Z) = ABαZβ, where A, α, and β are constants, B is burritos, and Z is pizzas. Note, the marginal utility of burritos is MUB = αABα-1Zβ and that of pizza is MUZ = βABαZβ-1. Initially, the price of burritos, pb, is $1 and the price of pizzas, pz, is $4. The price of burritos rises to $2. How does the consumer's consumption change? [Hint: As income is unspecified, you may want to treat it as a variable Y and give answers conditional on Y. Alternatively, you can discuss the ratio B/Z without knowing Y.] 7. Analyze the implications of the various tax proposals on labor. [Be sure to cite your sources for your answers. Your answers need not be very long but they should be clear. Label your graphs and explain in words.] A. Briefly describe the original George W. Bush tax cut proposal (the one that took effect during his first year in office). Note how the marginal rates changed and whether the tax cut affected only future earnings or past earnings. Were lump-sum rebates used? Using a formal (graphical or mathematical) analysis, show how these tax cuts are likely to affect individuals’ work effort. B. Now compare and contrast the current Bush tax cut proposal to that of the Democrats. Again, provide a formal analysis of the likely effects on work effort.C. Briefly discuss Governor Davis’s proposal on income and sales taxes. How are they likely to affect work effort and the prices paid by


View Full Document

Berkeley ECON 100A - HW 2: Consumer Theory

Documents in this Course
Pricing

Pricing

126 pages

Monopoly

Monopoly

33 pages

Pricing

Pricing

12 pages

Monopoly

Monopoly

20 pages

Load more
Download HW 2: Consumer Theory
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view HW 2: Consumer Theory and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view HW 2: Consumer Theory 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?