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3. Equitas is a small European country. Despite its small size, the country recognized as o leader in the pharmaceutical, banking and computing technology industries with some of the largest companies in those industries located in the country. Workers in Equitas enjoy some of the highest incomes in the whole world due to the relative economic. strength of these industries. In addition to its dynamic international trading economy. Equitas is also known for its progressive social policies. The country has one of the most complete and generous 'social safety nets' to support young and old people alike. For example, post-secondary students in Equitas have all their tuition refunded if they successfully graduate their program. Retired seniors may receive housing at reduced rents and generous income supplements if they have not saved enough retirement income. However, not everything is covered by the social safety net in Equitas: Basic medical care is tree in Equitas but the cost of dental care and prescription drugs are paid for by individuals and nqt the government. The Government of Equitas must raise revenues to pay for the generous social safety net. The Equitas Department of Finance already uses and existing array of personal and corporate income taxes to generate revenue. However, due to increasing expenses, the Minister of Finance is considering creating an excise tax to raise additional revenue to pay for the increasing expenses of its government programming. The Minister is considering imposing a $2 excise tax on one of two goods: restaurant meals (e.g. the tax would be $2. per restaurant meal sold) or doses of insulin (e.g. the tax would be $2 per dose sold). His rationale is the market size for both of these goods is similar and will impose a similar impact on the economy. Industry groups are understandably concerned about the excise tax being imposed on them. The Equitas Restaurants Association (ERA) believe that restaurants profitability will be negatively impacted because restaurant owners will have to absorb the cost of the tax. Diabetics of Equitas (DoE) are very concerned that low-income diabetics will not be able to afford higher insulin prices if the excise tax is imposed on this good. Note: insulin is a drug used by Type 1 diabetics to regulate the level of sugar in their blood/body. Without insulin, people with Type 1 diabetes will suffer serious health problems including death. Use this information to answer the following questions. a) What is the equilibrium price and quantity of restaurant meals with and without the proposed $2 excise tax? How much tax revenue will be generated by the excise tax on restaurant meals? Who will pay for the proposed tax: consumers or restaurant owners (i.e, what is the tax incidence)? How much deadweight loss (DWL) will be created by on excise tax on restaurant meals? Use the table below to answer the questions. ( 4 marks) a) What is the equilibrium price and quantity of restaurant meals with and without the proposed $2 exc much tax revenue will be generated by the excise tax on restaurant meals? Who will pay for the proposed tax: consumers or restaurant owners (i.e. what is the tax incidence)? How much deadweight loss (DWL) will be created by an excise tax on restaurant meals? Use the table below to answer the questions. ( 4 marks) Equitas Restaurant Market b) What is the equilibrium price and quantity of insulin with and without the proposed $2 excise tax? How much tax revenue will be generated by the excise tax on insulin? Who will pay for the proposed tax diabetics or insulin producers (i.e, what is the tax incidence)? How much deadweight loss (DWL) will be created by an excise tax on insulin? Use the table below to answer the questions. ( 4 marks) Equitas Insulin Market c) What is the total sumplus with the excise tax for each good? Students will need to show their calculations for all components of total surplus to receive full marks. ( 4 marks) d) The Minister of Finance has tasked the Department of Finance with making a recommendation on which good to charge the $2 excise tax on to. The Deputy Minister has assigned you, the Senior Economist, to complete an analysis and make a recommendation for the Minister. What good do you recommend charging the $2 excise tax on? Why? Use the information in parts a), b) and c) to support your rationale for your recommendation. Hint: there is no clear cut, correct answer. One can make an argument for taxing either of the two goods. You should also consider the consumer surplus, producer surplus and total surplus with and without the tax in your answer. (4 marks) 3. Equitas is a small European country. Despite its small size, the country recognized as o leader in the pharmaceutical, banking and computing technology industries with some of the largest companies in those industries located in the country. Workers in Equitas enjoy some of the highest incomes in the whole world due to the relative economic. strength of these industries. In addition to its dynamic international trading economy. Equitas is also known for its progressive social policies. The country has one of the most complete and generous 'social safety nets' to support young and old people alike. For example, post-secondary students in Equitas have all their tuition refunded if they successfully graduate their program. Retired seniors may receive housing at reduced rents and generous income supplements if they have not saved enough retirement income. However, not everything is covered by the social safety net in Equitas: Basic medical care is tree in Equitas but the cost of dental care and prescription drugs are paid for by individuals and nqt the government. The Government of Equitas must raise revenues to pay for the generous social safety net. The Equitas Department of Finance already uses and existing array of personal and corporate income taxes to generate revenue. However, due to increasing expenses, the Minister of Finance is considering creating an excise tax to raise additional revenue to pay for the increasing expenses of its government programming. The Minister is considering imposing a $2 excise tax on one of two goods: restaurant meals (e.g. the tax would be $2. per restaurant meal sold) or doses of insulin (e.g. the tax would be $2 per dose sold). His rationale is the market size for both of these goods is similar and will impose a similar impact on the economy. Industry groups are understandably concerned about the excise tax being imposed on them. The Equitas Restaurants Association (ERA) believe that restaurants profitability will be negatively impacted because restaurant owners will have to absorb the cost of the tax. Diabetics of Equitas (DoE) are very concerned that low-income diabetics will not be able to afford higher insulin prices if the excise tax is imposed on this good. Note: insulin is a drug used by Type 1 diabetics to regulate the level of sugar in their blood/body. Without insulin, people with Type 1 diabetes will suffer serious health problems including death. Use this information to answer the following questions. a) What is the equilibrium price and quantity of restaurant meals with and without the proposed $2 excise tax? How much tax revenue will be generated by the excise tax on restaurant meals? Who will pay for the proposed tax: consumers or restaurant owners (i.e, what is the tax incidence)? How much deadweight loss (DWL) will be created by on excise tax on restaurant meals? Use the table below to answer the questions. ( 4 marks) a) What is the equilibrium price and quantity of restaurant meals with and without the proposed $2 exc much tax revenue will be generated by the excise tax on restaurant meals? Who will pay for the proposed tax: consumers or restaurant owners (i.e. what is the tax incidence)? How much deadweight loss (DWL) will be created by an excise tax on restaurant meals? Use the table below to answer the questions. ( 4 marks) Equitas Restaurant Market b) What is the equilibrium price and quantity of insulin with and without the proposed $2 excise tax? How much tax revenue will be generated by the excise tax on insulin? Who will pay for the proposed tax diabetics or insulin producers (i.e, what is the tax incidence)? How much deadweight loss (DWL) will be created by an excise tax on insulin? Use the table below to answer the questions. ( 4 marks) Equitas Insulin Market c) What is the total sumplus with the excise tax for each good? Students will need to show their calculations for all components of total surplus to receive full marks. ( 4 marks) d) The Minister of Finance has tasked the Department of Finance with making a recommendation on which good to charge the $2 excise tax on to. The Deputy Minister has assigned you, the Senior Economist, to complete an analysis and make a recommendation for the Minister. What good do you recommend charging the $2 excise tax on? Why? Use the information in parts a), b) and c) to support your rationale for your recommendation. Hint: there is no clear cut, correct answer. One can make an argument for taxing either of the two goods. You should also consider the consumer surplus, producer surplus and total surplus with and without the tax in your answer. (4 marks)