CurrentlyThe Price of Consuming Housing $x _ { 1 }$ Is Lowered by the Fact That Home Mortgage Interest Is

question 10

Essay

Currently.the price of consuming housing $x _ { 1 }$ is lowered by the fact that home mortgage interest is tax deductible.Suppose the government proposed to eliminate this implicit subsidy of your housing consumption,raising the price from $\left( p _ { 1 } - s \right)$ to $p _ { 1 }$ .At the same time,the government lowers the tax on other consumption,lowering the price from $\left( p _ { 2 } + t \right)$ to $p _ { 2 }$ .
a.Write down your original budget constraint assuming the consumer has income I.
b.Suppose the utility function
$u \left( x _ { 1 } , x _ { 2 } \right) = \frac { 1 } { 3 } \ln x _ { 1 } + \ln x _ { 2 }$ captures your tastes,and suppose
$I = 10,000$ ,
$p _ { 1 } = 10$ ,
$p _ { 2 } = 1$ ,
$s = 6$ and
$t = 1$ .Write out the utility maximization problem for this consumer prior to any policy change.
c.How much housing and other goods will this consumer consume prior to any policy change?
d.When the policy change goes into effect,will this consumer still be able to afford the bundle you derived in (c)?
e.When the policy change goes into effect,what bundle will the consumer consume?

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Definitions:

Expiratory Capacity (EC)

The maximum volume of air that can be expelled from the lungs after a normal tidal volume expiration, including both the expiratory reserve volume and the tidal volume.

Anaerobic Breakdown

The process of generating energy in cells in the absence of oxygen, producing substances such as lactate.

ATP

Adenosine triphosphate is a compound that transports energy within cells to fuel metabolic processes.

Aerobic Respiration

The process of producing cellular energy involving oxygen, converting glucose and oxygen into carbon dioxide and water, and releasing energy.