Pam is rich and at this high income level, her demand for good X is independent of
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Question:
Pam is rich and at this high income level, her demand for good X is independent of income and given by
X*=151- 3 px/py
where px and py denote respectively the price of good X and the price of good Y.
Suppose the government imposes a "consumption" per-unit tax t=3.3 on good X. Assume that the price of good Y is equal to 4 and the sellers of good X charge a price 1.4 before and after the tax is imposed.
Carry out the calculations required to find Pam's excess burden due to this tax. Then enter the value of Pam's excess burden below. (Hint: There is sufficient information to answer this question.)
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