Question
The state of Delaland has two types of towns. Type A towns are well-to-do, and type B towns are much poorer. Being wealthier, type A
The state of Delaland has two types of towns. Type A towns are well-to-do, and type B towns are much poorer. Being wealthier, type A towns have more resources to spend on education; their demand curve for education is Q = 100 - 2P, where P is the price of a unit of education. Type B towns have a demand curve for education which are given by Q = 100 - 4P.The cost of a unit of education is $20 per unit
Delaland wants to completely equalize the units of education across towns by taxing type
A towns for each unit of education they provide and subsidizing type B towns for each unit
of education they provide. It wants to do this in such a way that the taxes on type A towns
are just enough to finance the subsidies on type B towns. If there are 4 type A towns for
every 5 type B towns, how big a tax should Delaland levy on type A towns? How big a
subsidy should they provide to type B towns?
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