Question
6. (Optional) Suppose the demand for and supply of gasoline in Tataland are given as P d = 10 Qd and P s = Qs
6. (Optional) Suppose the demand for and supply of gasoline in Tataland are given as P d = 10 Qd and P s = Qs , respectively. The president of Tataland wants to build a new palace for himself, but does not have enough funds. So he decides to tax gasoline. (a) He asks his advisor (who turns out to be you) to find the optimal sales tax (dollars per unit). How much would you tax a liter of gasoline? What would be the price paid by consumers and charged by producers? What is the total amount of tax revenue? What is the burden of this tax on consumers and producers, separately? (b) One of his assistants tells him that the demand scheme has been miscalculated. The demand is actually P d = 10 0.5Qd . Is this more (in)elastic demand curve? How would your answer change to part (a)? (c) There is a competition among his assistants. The other assistant of his tells him that the demand scheme is truly P d = 10 2Qd . Is this more (in)elastic demand curve? How would your answer change to part (a)? (d) If your president needs more revenues, what kind of products you advise to tax?6. (Optional) Suppose the demand for and supply of gasoline in Tataland are given as P d = 10 Qd and P s = Qs , respectively. The president of Tataland wants to build a new palace for himself, but does not have enough funds. So he decides to tax gasoline. (a) He asks his advisor (who turns out to be you) to find the optimal sales tax (dollars per unit). How much would you tax a liter of gasoline? What would be the price paid by consumers and charged by producers? What is the total amount of tax revenue? What is the burden of this tax on consumers and producers, separately? (b) One of his assistants tells him that the demand scheme has been miscalculated. The demand is actually P d = 10 0.5Qd . Is this more (in)elastic demand curve? How would your answer change to part (a)? (c) There is a competition among his assistants. The other assistant of his tells him that the demand scheme is truly P d = 10 2Qd . Is this more (in)elastic demand curve? How would your answer change to part (a)? (d) If your president needs more revenues, what kind of products you advise to tax?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started