Calculate level of utility after a per unit sales (sin) tax

Question

Given this information:

F=food

B=beer

U(F,B)=0.001F²B³

Currently, the price of the food is 10, and the price of beer is 20.

What would the level of utility be if the government adopted a per unit sales tax of 4 on the beer? (aka raising the price of beer from 20 to 24)

Answer 1

Sharon H.,

Looks like you didn't state all the conditions of the problem? If it's just an algebraic calculation based on prices, do it! You have all the inputs right there. But, if there are additional constraints on consumption, and the equation reflects consumption data rather than price data, with fixed money divided between food and beer (yech!), as would be customary in economics problems, you need to redo the whole problem.

-- Cheers, --Mr. d .