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Max has a utility function




0603. Max has a utility function U(x, y) = 2xy + 1. The prices of x and y are both $1 and Max has an income of $20.;a) How much of each good will he demand?;b) A tax is placed on x so that x now costs Max $2 while his income and the price of y stay the same. How much of good x does he now demand?;c) Would Max be as well off as he was before the tax if when the tax was imposed, his income rose by an amount equal to $1 times the answer to part (b)?;d) Is it true that ?a utility maximising consumer will always choose a bundle at which his indifference curve is tangent to his budget line??;Briefly explain your answer


Paper#28506 | Written in 18-Jul-2015

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