If income increases due to a decrease in taxes, then
A) utility will increase because consumers can afford a larger bundle of goods.
B) utility will fall because consumers will be forced to buy a smaller bundle of goods.
C) utility will remain constant.
D) utility will increase because consumers will be forced to buy a smaller bundle of goods.
Question 2
People derive utility in their lives from consuming goods (all other goods), g, and clean air (measured as the number of particulates removed per m3), a, as measured with the utility function U(g,a) = g0.6a0.4. The price index of consumer goods equals 20 per day. Income equals 1000. What is likely to happen to the number of asthma cases as the price of clean air (abatement cost) increases from 10 to 20?
A) Asthma cases decrease because the particulates per m3 increase by 2 units.
B) Asthma cases increase because the particulates per m3 decrease by 2 units.
C) Asthma cases increase because the particulates per m3 increase by 2 units.
D) There is not enough information to answer this question.
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