Edmund has the utility function

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Edmund has the utility function U(x, y) = 2xy + 1. The prices of x and y are both $1 and Edmund has an income of $20.

(a) How much of each good will he demand?

(b) A tax is placed on x so that it now costs Edmund $2 while his income and the price of y stay the same. How much of good x does he now demand?

(c) Would Edmund 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)?

Reference no: EM13851876

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