Help-Economics Questions


Help-Economics Questions

Suppose we have an economy with three individuals, each with the following utility functions and budget constraints:

Person 1: u(X1, X2) = X10.25 * X20.75 subject to 4X1 + 2X2 = 50

Person 2: u(X1, X2) = X10.5 * X20.5 subject to 4X1 + 2X2 = 75

Person 3: u(X1, X2) = X10.75 * X20.25 subject to 4X1 + 2X2 = 100

  1. For each individual, graphically depict the utility maximizing allocation of X1 and X2.
  2. What is the total social welfare in this economy using a Utilitarian social welfare function?

Who is the worst-off person in this society?

  1. Suppose the government wants to increase social welfare and taxes the most well-off person $25 and redistributes that income to the worst-off person.
  2. Depict how the utility maximizing decision changes for each person in the economy under this scenario.
  3. Discuss the relative magnitudes of the income and/or substitution effects due to the policy.

iii. How has social welfare changed as a result of the policy?

Help-Economics Questions

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