Question
Need help with the following questions especially with explanations for the per-unit tax ones, please. a) What is the formula to derive the price elasticity
Need help with the following questions especially with explanations for the per-unit tax ones, please.
a) What is the formula to derive the price elasticity of demand? Explain why you can determine which of the goods (A or B) in the diagram faces a more elastic demand by comparing the slopes of the demand curves at the equilibrium price.
b) Suppose a per-unit tax of $5 is imposed on both A and B. How will the per-unit tax affect the market equilibrium price and quantity of A and B?
c) From which good can the government collect more tax revenue? Explain your answer clearly with necessary illustration in the given diagram. [Hint: Do not draw two diagrams.]
d) Which group of consumers (A or B) will bear a larger proportion of the tax burden? Explain your answer clearly with necessary illustration in the given diagram. [Hint: Do not draw two diagrams and state the calculation of share of tax burden.]
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