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Grace, YU Yatu Email: graceyt@hku.hk Office: KK1026 Tel: 2857 8310 Something about the tutorial: Tutorials have to take attendance. If you change tutorial session temporarily, please sign up the tutorial session you registered originally. I will prepare tutorial notes for you. After the tutorial, you can download the notes on Moodle.
Budget Constraints on Taxes, Subsidies and Rationing (V. Ch2.6) Quantity Tax a tax on each unit of the good. Value Tax (ad valorem tax) a tax on the price of the good.
Quantity Subsidy an amount to the consumer that depends on the amount of the good purchased. Ad Valorem Subsidy a subsidy based on the price of the good being subsidized.
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Rationing the level of consumption of some good is fixed to be no larger than some amount.
QUESTION: Consider a situation where a consumer could consume good 1 at a price of P1 up to some level , and then had to pay a tax t per unit on all consumption in excess of How to draw the budget line? .
The Food Stamp Program a. A family is allowed to buy $153 of food stamps for $25. (Assume we are measuring each good in terms of the money spent on it, the price of each good is automatically 1.) A family is simply given $200 food stamps.
b.
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y f ( x) is defined as
df ( x) f ( x x) f ( x) f ' ( x) lim dx x x0
1. 2. 3. 4. 5. 6. Rules of differentiation
f ( x) k f ( x) kxn
f ( x) ln x
F ( x) h( x) g ( x) F ( x) h( x) g ( x)
F ( x) h[ g ( x)]
f ( x1, x2 )
with respect to
x1 is defined by
f ( x1, x2 )
with respect to
x2 is defined by
2
Rules of differentiation: Similar as derivatives. But when take the partial derivative of
f ( x1, x2 )
with respect to
Application: Marginal utility Marginal utility (MU) measures the additional satisfaction obtained from consuming one additional unit of a good.
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Marginal rate of substitution (MRS) is the rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.
EXERCISES: Calculate marginal utilities and marginal rates of substitution for some common utility functions. MU1(x1, x2) ax1 + bx2 a MU2(x1, x2) b 1 ln x1 + x2 v(x1) + x2 x1x2 x1ax2b (x1 + a)(x2+ b) x1a + x2a 1/x1 v(x1) x2 a x1a-1x2b (x2 + b) a x1a-1 1 1 x1 b x1ax2b-1 (x1 + a) a x2a-1 MRS(x1, x2) -a/b
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