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Suppose that the linear supply curve intersects the linear demand curve. The initial equilibrium is e. (1) Consider a specific (per unit) tax t, show
Suppose that the linear supply curve intersects the linear demand curve. The initial equilibrium is e. (1) Consider a specific (per unit) tax t, show the tax effect on Government revenue. (2) Now suppose the demand curve becomes flatter, but still goes through point e, so that it is more elastic at e than originally. Discuss how the tax affects Government revenue differently than with the original demand curve (larger or smaller).
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