Relier Pairs 2. Budget ConstraintVersion en ligne Intermediate Microeconomics 8th Edition: A Modern Approach par Shaner Adams 1 If the income of the consumer increases and one of the prices decreases at the same time, will the consumer necessarily be at least as well-off? 2 What happens to the budget line if the price of good 2 increases, but the price of good 1 and income remain constant? 3 Suppose that a budget equation is given by p1x1 + p2x2 = m. The government decides to impose a lump-sum tax of u, a quantity tax on good 1 of t, and a quantity subsidy on good 2 of s. What is the formula for the new budget line? 4 If the price of good 1 doubles and the price of good 2 triples, does the budget line become flatter or steeper? 5 Originally the consumer faces the budget line p1x1 + p2x2 = m. Then the price of good 1 doubles, the price of good 2 becomes 8 times larger, and income becomes 4 times larger. Write down an equation for the new budget line in terms of the original prices and income. 6 What is the definition of a numeraire good? 7 Suppose that the government puts a tax of 15 cents a gallon on gasoline and then later decides to put a subsidy on gasoline at a rate of 7 cents a gallon. What net tax is this combination equivalent to? A tax of 8 cents a gallon. The new budget line is given by 2p1x1 + 8p2x2 = 4m. A good whose price has been set to 1; all other goods’ prices are measured relative to the numeraire good’s price. (p1 + t)x1 + (p2 − s)x2 = m − u. Flatter. The slope is −2p1/3p2. Yes, since all of the bundles the consumer could afford before are affordable at the new prices and income. The vertical intercept (x2 axis) decreases and the horizontal intercept (x1 axis) stays the same. Thus the budget line becomes flatter.
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