I have 5 questions..
suppose the demand function for good X is
Px= 6 – (Qx/10)
and the supply function is perfectly elastic at $1. Good X is taxed at $2 per unit.
Good Y (which is independent of good X) has the following demand function
Py= 3 – (Qx/20)
and the supply function is perfectly elastic at $1. Initially Good Y is not taxed.
a. How much tax revenue is collected and What is the excess burden of the $2 per unit tax on X?
b. How much revenue is collected if the tax On X is reduced to $1 per unit and good Y is taxed at $1 per unit?
c. What is the excess burden of taxing both goods at $1 per unit?
d. Compare the revenue and excess burden of taxing X alone (at t = $2) versus taxing X and Y (at t = $1 each). Which tax system is preferable from the point of view of economic efficiency? Calculate the efficiency loss ratio for X alone and then X and Y.
The price elasticity of demand for peanuts is -2 and the price elasticity of supply is 3. Expenditures on peanuts after imposing a sales tax of 2% is $20000. Calculate the excess burden of the tax, assuming that peanuts are sold in perfectly competitive markets. Assume that the price elasticities given are based on the substitution effect of the tax.
Consider the following demand and supply functions.
Qd =1000 - 10P
Qs =10 + 200P
a. Find the original competitive equilibrium price.
b. Impose a S 1 per unit tax and find the new quantity, the demand price, and the supply price.
c. What proportion of the tax is paid by the producer and what proportion is paid by the consumer?
d. What is the excess burden (deadweight loss) from the tax?
e. What is the efficiency loss ratio? (Carry two decimal places)
4. The price elasticity of demand for wine is estimated to be -1 at all possible quantities. Currently, 200 million gallons of wine are sold per year, and the price averages $6 per bottle. Assuming that the price elasticity of supply is 1 and the current tax rate is $1 per bottle; calculate the current excess burden of the tax on wine.
Suppose the tax per bottle is increased to $2. What will happen to the excess burden of the tax as a result of the tax increase? Under what circumstances can a doubling of the tax on wine actually improve resource use in a country, despite the increase in the excess burden?
5. Explain the Ramsey Rule for optimal commodity taxation and give a brief example.
