Max Has a Utility Function U(x, Y)= 2xy + 1

question 30

Short Answer

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)?

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