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How much of each good will she demand

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Reference no: EM132461009

The utility function of Vivian is given by u(x1, x2 ) = 2x1x2 + 3. The income is m and the prices (positive) are p1 and p2, respectively.

Consider the prices p1 = p2 = 1 and m = 20.

  1. How much of each good will she demand?
  2. A tax of $1.5 per unit is placed on x1 while her income and the price of x2 stay the same. How much of each good will she demand now? How much is the tax revenue?
  3. Calculate the income and substitution effects of the price change. How much is the total effect?

Reference no: EM132461009

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