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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
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
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