=+d. Suppose a post-tax equilibrium exists and that price increases for buyers and falls for sellers. In

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=+d. Suppose a post-tax equilibrium exists and that price increases for buyers and falls for sellers.

In such an equilibrium, I will still be selling some quantity of x1 to you. (Can you explain why?) How do the relevant portions of the budget constraints you and I face look in this new equilibrium, and where will we optimize?

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Ali Khawaja

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