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Suppose the government imposes a tax t per unit of the resource on consumers in each period (the tax is the same in each period).
Suppose the government imposes a tax t per unit of the resource on consumers in each period (the tax is the same in each period). So consumers pay the market price p plus a tax t for each unit they purchase. (i) What happens to extraction in each period (i.e. does it go up or down)? Use the diagram to demonstrate your result and also explain the intuition (i.e. give a common sense explanation). (ii) In period 0, is the burden of the tax shared between producers and consumers? That is, does the net price that consumers end up paying (p t) rise by more or less than the full amount of the tax? Why
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