Legal tender

Duty charges and VAT on alcohol vary across different parts of Europe. For example, a bottle of wine bought in Britain incurs a £1.90 duty charge and 20 percent in VAT. A bottle of wine in Italy incurs no duty charge, but slightly higher VAT at 22 percent. (See http://i.telegraph.co.uk/multimedia/archive/03306/taxes_3306215b.jpg for rates across Europe). Assume a bottle of red wine in Britain is £10.90 before duty and tax, and a bottle of champagne sells for about £6.75 before duty and tax. The pre-duty and pre-tax prices are the same in Italy (normally the legal tender in Italy is the Euro whose exchange rate with the pound fluctuates.) If the marginal utility for the last bottle of red wine consumed is equal to 6 and for the last bottle of champagne is equal to 4, show that the utility-maximizing rule holds for wine purchases in Britain, but not for purchases in Italy that do not charge any duty and only slightly higher VAT rate. What would make the utility-maximizing rule hold for wine sold in Italy? Prices (in £) before and after duty charge and VAT are listed as follows: