·McAfee-McAfee is known to consume 5 liters of beer and 20 kilograms of sausage.

Question

·McAfee-McAfee is known to consume 5 liters of beer and 20 kilograms of sausage. In Brass Monkey, Ontario beer costs 1 Canadian dollar per liter and sausage costs 2 Canadian dollars per kilogram ·Manning-Manning consumes 5 kilograms of sausage and 10 liters of beer per week. In North Shag, a liter of beer costs 2 New Zeland dollars and sausage costs 2 New Zeland dollar per kilogram » Stevenson- Stevenson consumes 5 kilograms of sausage and 30 liters of beer per week. In Gooey Shoes, a liter of beer costs 10 Falkland Island pounds and sausage costs 20 Falkland Island pounds per kilogram (a) Draw the budget line for each of the three fugitives, using a different color of ink for each one. Label the consumption bundle that each chooses. On this graph, superimpose Sir Cerdic's budget line and the bundle he chooses (b) After pondering the dossiers for a few moments, Lord Peter announced: "Unless Sir Cerdic has changed his tastes, I can eliminate one of the suspects. Revealed preferences tell me that one of the suspects is innocent." Which one? (c) After thinking a bit longer, Lord Peter announced: "If Sir Cerdic left voluntarily, then he would have to be better off than he was before. Therefore is Sir Cerdic left voluntarily and if he has not changed his tastes, he must be living in

Explanation / Answer

To make consumer well off facing quantity tax as an income tax, the preference should be kinked. Same as what we find in perfect complements. Where the change in price will not induce any change in the quantity demanded.

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