{"id":256,"date":"2015-02-22T04:53:36","date_gmt":"2015-02-21T17:53:36","guid":{"rendered":"http:\/\/casestudyhelp.com\/sample-questions\/?p=256"},"modified":"2018-01-30T17:52:07","modified_gmt":"2018-01-30T06:52:07","slug":"price-theory-3","status":"publish","type":"post","link":"https:\/\/casestudyhelp.com\/sample-questions\/price-theory-3\/","title":{"rendered":"Price Theory"},"content":{"rendered":"<p><strong>Price Theory<\/strong><br \/>\nAssignment 1 { Consumer Theory<br \/>\nCarbon dioxide (CO2) is emitted when drivers use petrol to power their cars. CO2 emis-<br \/>\nsions are a negative externality of petrol use, as they contribute to global warming. One<br \/>\nway to correct this market failure is to levy a corrective tax (also known as a Pigovian<br \/>\ntax) on petrol.<br \/>\nSuppose that Sally has an income of $300 per week. Sally&#8217;s utility is given by the<br \/>\nfunction U(x; y) = pxy, where x is the quantity of petrol (measured in litres), and y is<br \/>\nthe quantity of the composite good. The marginal utilities for this function are,<br \/>\nMUx =<br \/>\npy<br \/>\n2px<br \/>\nand MUy =<br \/>\npx<br \/>\n2py<br \/>\n:<br \/>\nInitially, the price of petrol is Px = $1:5 per litre. The price of the composite good is<br \/>\nPy = $1 per unit.<br \/>\nQuestion 1: Find Sally&#8217;s optimum consumption basket. What level of utility does Sally<br \/>\nreceive from this basket? (4 Marks)<br \/>\nQuestion 2: Illustrate your solution to question 1 on a graph. Your graph should have<br \/>\npetrol on the horizontal axis, and the composite good on the vertical axis. Be sure to<br \/>\nshow the budget line, the optimum consumption basket and the indi\u000berence curve that<br \/>\npasses through the optimum. (2 Marks)<br \/>\nQuestion 3: Now suppose that the government places a tax on petrol, raising the price<br \/>\nto Px = $2 per litre. How does the tax alter Sally&#8217;s behaviour and utility? (4 Marks)<br \/>\nQuestion 4: Add your solution to question 3, to your graph from question 2. Once<br \/>\nagain, show the budget line, the optimum consumption basket and the indi\u000berence curve<br \/>\nthat passes through the optimum. (2 Marks)<br \/>\nQuestion 5: How much compensation would Sally need to receive after the tax is im-<br \/>\nposed, to restore her original level of utility? How much petrol would Sally consume if<br \/>\nshe received this compensation? (4 Marks)<br \/>\nQuestion 6: How does providing compensation to Sally, as in question 5, a\u000bect the<br \/>\ne\u000ecacy of the corrective tax? Brie y explain. (4 Marks)<\/p>\n<p style=\"text-align: center;\"><strong>To get answer chat with online assignment adviser<\/strong><\/p>\n<p style=\"text-align: justify;\" align=\"center\"><a title=\"hire best assignment experts online\" href=\"https:\/\/casestudyhelp.com\/MyOrder.php\"><img decoding=\"async\" src=\"https:\/\/casestudyhelp.com\/images\/hire-best-assignment-experts-online.gif\" alt=\"Hire Your Assignment Writing Expert for Collage\/University\" \/><\/a><\/p>\n<script type=\"text\/javascript\" charset=\"utf-8\" src=\"http:\/\/w.sharethis.com\/widget\/?wp=6.2.9\"><\/script>","protected":false},"excerpt":{"rendered":"<p>Price Theory Assignment 1 { Consumer Theory Carbon dioxide (CO2) is emitted when drivers use petrol to power their cars. CO2 emis- sions are a negative externality of petrol use, as they contribute to global warming. One way to correct this market failure is to levy a corrective tax (also known as a Pigovian tax) [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[3],"tags":[17,129,5,13,8],"_links":{"self":[{"href":"https:\/\/casestudyhelp.com\/sample-questions\/wp-json\/wp\/v2\/posts\/256"}],"collection":[{"href":"https:\/\/casestudyhelp.com\/sample-questions\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/casestudyhelp.com\/sample-questions\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/casestudyhelp.com\/sample-questions\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/casestudyhelp.com\/sample-questions\/wp-json\/wp\/v2\/comments?post=256"}],"version-history":[{"count":2,"href":"https:\/\/casestudyhelp.com\/sample-questions\/wp-json\/wp\/v2\/posts\/256\/revisions"}],"predecessor-version":[{"id":2888,"href":"https:\/\/casestudyhelp.com\/sample-questions\/wp-json\/wp\/v2\/posts\/256\/revisions\/2888"}],"wp:attachment":[{"href":"https:\/\/casestudyhelp.com\/sample-questions\/wp-json\/wp\/v2\/media?parent=256"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/casestudyhelp.com\/sample-questions\/wp-json\/wp\/v2\/categories?post=256"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/casestudyhelp.com\/sample-questions\/wp-json\/wp\/v2\/tags?post=256"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}