Tax paid on income from a rental property represents _____. a. ...

[bcretired]

Tax paid on income from a rental property represents _____.
 
  a. a consumption tax
  b. double taxation
  c. progressive taxation
   d. estate taxation

Question 2

Suppose the typical consumer only purchases food and clothing, and her utility can be expressed as U = F  C. Currently, food costs 5 per unit and clothing costs 2 per unit. Her income is 70.
 
  If the price of food increases to 6, compare the resulting Laspeyres price index with a true cost of living index.

[Loise Hard]

Answer to Question 1

b

Answer to Question 2

Maximizing utility subject to the initial constraint (5F + 2C = 70 ) yields C/F = 5/2 or F = 7 and C = 17.5. The Laspeyres price index calculates the ratio of the income necessary to achieve the original bundle relative to the original income. In this case, (6  7 ) + (2  17.5 )/70 = 1.10. The true cost of living index calculates the ratio of the income necessary to achieve the original level of utility relative to the original income. Utility is held constant when C  F = 17.5  7 = 122.5. The consumer is on the new budget line when C/F = 3. Combining yields F = 6.39 and C = 19.17. At the new prices, this requires an income of 76.68 and a resulting cost of living index of 76.68/70 = 1.095.

[bcretired]

Thank you

[Loise Hard]

No problemo