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22. [4] Suppose that a state government is considering the imposition of an excise tax on widgets. Suppose that the market for widgets is characterized
22. [4] Suppose that a state government is considering the imposition of an excise tax on widgets. Suppose that the market for widgets is characterized by monopolistic competition (the key being that the market is not perfectly competitive). The government is considering the imposition of a per-unit tax = t or an ad valorem tax = t. They desire to collect the same amount of revenue from either tax. The final price will be higher (and final output smaller) under a the ad valorem tax b the per-unit tax the final price will be the same under both taxes
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