Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose there are two types of food: Slow and Fast. Slow food is food that takes a lot of time and energy to prepare, and

image text in transcribed
image text in transcribed
Suppose there are two types of food: Slow and Fast. Slow food is food that takes a lot of time and energy to prepare, and is possibly more \"authentic.\" Consider it a high-end luxury good. All other food we'll call Fast. It's a staple needed to live, is quick to acquire and cheap. The slow food costs $20 per unit, while the fast food costs $5 per unit. The price elasticity of demand for slow food is -2.8. The price elasticity of demand for fast food is -.20. The government is considering a tax on food. The tax on slow food is denoted ts, and the tax on fast food is denoted t;. a. Comment on the significance of the different elasticities of demand. b. What is the equation for the optimal (Ramsey) value of t. in terms of t? c. In a clearly written paragraph, comment on the relative size of t. compared to tf, and why we are seeing this result. d. Suppose the government has selected tax levels t; and t; using the Ramsey rule. Furthermore, at those taxes, the market sells 3 million units of slow food and 300 million units of fast food., the government collects $1 billion in revenue from these taxes. What are the values of t; and t

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Theory And Practice Of Public Sector Reform

Authors: Steven Van De Walle, Sandra Groeneveld

1st Edition

1317500113, 9781317500117

More Books

Students also viewed these Economics questions