Open Word and answer the following questions. Save the document and print it when you are done. 1. Analytically, we can show that the demand curves for goods 1 and 2 with a CobbDouglas utility...

Open Word and answer the following questions. Save the document and print it when you are done.

1. Analytically, we can show that the demand curves for goods 1 and 2 with a CobbDouglas utility functionthese demand functions to compute the income, substitution, and total effects for x₁
for a $1/unit tax. Show your work. 2. We know that the tax/rebate scheme gives back too little income to return the consumer to the initial level of utility (1250 units). With a $1/unit tax, find that level of rebate where the consumer is made whole in the sense that U∗ = 1250. Describe your procedure in answering this question.

3. At point D in Figure 1.4.8.3, is the MRS greater or smaller in absolute value than the price ratio before the tax/rebate scheme is implemented? How do you know this?