l. The government of the District of Columbia, in an attempt to increase tax revenues1 raised the tax of gasoline imposed on gas sold within the District but found, to its dismay that gas tax revenues actually fell in response to the tax increase. Explain why this may have happened. Explain as well._, why the same result would not occur in a State like Montana. 1. Trendy Travel Transit {TTT} is considering a fare increase. They have studied ridership data from previous years, and have estimated the following demand curve for their services: Q = ll 4D,,lil P where Q is the number of riders per month and P is the fare charged for each trip. Currently, this fare is equal to S l. a) Given the SI fare, how many riders use I I [ per month? b} Calculate the price elasticity of demand for TTT's services. c} It" TTT decides to raise their fare1 will revenues increase or decrease? How do you know this? 3. Suppose the market for apartments can be described by the following supply and demand curves: Qs = -2IJ + lP Q\" = 4 2UP a) Find the equilibrium price and quantity. Illustrate on a graph. b} Calculate the consumer and producer surplus. c} Suppose that the city rent control laws establish a price ceiling of Sli'month no rent may be charged above $1 l}. How many apartments will be rented out? What is the new consumer surplus? The new producer surplus? What is the deadweight loss of the rent control policy? 4. The government is considering taxing one of two goods: milk or caviar. Milk. being a necessity. has a relatively inelastic demand curve. Caviar. being a luxury, has a very elastic demand curve. The same size tax is being considered for each good. The government wants to choose the good to tax based on which tax will bring in the most revenue. You are hired to tell them which good will best meet this goal. a} Draw two supply and demand diagrams, one for milk and one for caviar {for simplicity, assume that the supply curve looks similar for each]. Use the graphs to illustrate the revenue raised by a tax on each good. Which tax brings in more revenue? Can you explain the intuition behind this result? b} Can you tell which tax produces the least deadweight loss? \"at is the intuition behind this result? c) Given your results, does maximizing revenue seem like a good goal for the government to use when setting taxes? Why or why not