The demand for snorkels in Berhama is given by Q S = 500 8P S and
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The demand for snorkels in Berhama is given by QS = 500 – 8PS and the supply of snorkels in Berhama is given by QS = 200 + 4PS. The demand for kayaks is given by Qk = 650 – 6Pk and the supply of kayaks is given by Qk = 50 + 1.5Pk. Both goods are currently untaxed, but the government of Berhama needs to raise $5,000 (to finance a new lighthouse) by taxing snorkels and kayaks. What tax should it levy on each of the two goods?
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If it puts a tax of s on snorkels the equilibrium price will solve 500 8P s 200 4P s s or 12P s 300 ...View the full answer
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