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Suppose demand for domestic airline tickets is given by P = 800 - 3Q and supply is given by P = 10 + 2Q.
Suppose demand for domestic airline tickets is given by P = 800 - 3Q and supply is given by P = 10 + 2Q. The government, in an attempt to encourage Australians to consider driving instead of flying, decides to impose a $50 tax on plane tickets to be paid by consumers. Note: Do not include $ signs or commas in your answer. a) What is the pre-tax equilibrium price of a domestic airline ticket? b) How much more will consumers pay for a ticket after the tax is imposed? c) Who bears the greater burden of the tax? Why? d) How much revenue will this tax generate for the government? e) How much economic surplus will be lost due to the imposition of the tax?
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Answer a To find the pretax equilibrium price of a domestic airline ticket we need to set the demand equal to the supply and solve for the price Deman...Get Instant Access to Expert-Tailored Solutions
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