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Suppose M = 30, Pi = 2, = 3. a) The government wishes to impose a quantity (i.e. per unit) tax of $0.25 on good
Suppose M = 30, Pi = 2, = 3. a) The government wishes to impose a quantity (i.e. per unit) tax of $0.25 on good 1. Show the effect of imposing this tax in a clearly labelled graph containing before and after budget lines. b) Suppose instead that the government wishes to impose a value tax of 0.25 on the consumer's expenditure on good 1. Show the effect of imposingthis tax in a graph containing before and after budget lines. c) Can we say which of these is better for a rational consumer? Explain.
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