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
$u \left( x _ { 1 } , x _ { 2 } \right) = x _ { 1 } ^ { 0.25 } x _ { 2 } ^ { 0.75 }$ 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.How much would this consumer be willing to pay to get the policy change implemented?

Question

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
 $u \left( x _ { 1 } , x _ { 2 } \right) = x _ { 1 } ^ { 0.25 } x _ { 2 } ^ { 0.75 }$ 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.How much would this consumer be willing to pay to get the policy change implemented?

Quizplus · Accepted Answer

The Answer of 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
 $u \left( x _ { 1 } , x _ { 2 } \right) = x _ { 1 } ^ { 0.25 } x _ { 2 } ^ { 0.75 }$ 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.How much would this consumer be willing to pay to get the policy change implemented?

CurrentlyThe Price of Consuming Housing x1x _ { 1 }x1​ Is Lowered by the Fact That Home Mortgage Interest Is

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