Jennifer divides her income between coffee and croissants, Ask an Expert

Economics

Jennifer divides her income between coffee and croissants (both of which are normal goods). The government has decided to impose a tariff on coffee beans in order to promote the coffee industry in Canada. This tariff results in an increase in the price of coffee in Canada.

a. Show the effect of the tariff on Jennifer's budget constraint.

b. Show the effect of the tariff on Jennifer's optimal consumption bundle assuming that the substitution effect outweighs the income effect for croissants.

c. Show the effect of the tariff on Jennifer's optimal consumption bundle assuming that the income effect outweighs the substitution effect for croissants

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9498848

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