e) Suppose that the government is looking to tax Rugby AU to raise revenue for building new sport facilities for kids and hires you to advise which one of the taxes above – a tax per unit or a lump sum – to implement. Which one of the two taxes would you recommend? Justify and explain why.
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hi how about the answer for part d and e?
d) Lump sum tax (LS): Instead of a tax per unit, the government imposes a lump tax of
$400 on Rugby AU. Find the new optimal price ? % &" and quantity ?%&" that Rugby AU
chooses and compute its profit ?%&" in this case.
e) Suppose that the government is looking to tax Rugby AU to raise revenue for building
new sport facilities for kids and hires you to advise which one of the taxes above – a tax per unit or a lump sum – to implement. Which one of the two taxes would you
recommend? Justify and explain why.
Step by step
Solved in 4 steps
- Suppose you are the managing director of a firm that produces two goods: A and B. The priceelasticity of demand for good A is 0.75 and for good B it is 2.5. The firm is experiencing seriouscash flow problems and you have to increase total revenue as soon as possible. If you were ina position to set the price for these two goods, what would be your pricing strategy for eachproduct?17. Consider a perfectly elastic demand curve at p = 10, and a supply curve given by the following equation: p = 5 + 3q. Suppose that a tax of $3 per unit is imposed on producers. Which of the following statements is true? (A) Consumer Surplus is zero. (B) The tax burden is entirely on consumers. (C) Producer Surplus is zero. (D) Consumers pay $2 of the tax, while producers pay $1 of the tax.Don't use chatgpt and make sure you include the graphs needed (a) Suppose in a competitive market, the market demand curve for salt is infinitelyinelastic. What is the impact of a per-unit tax (i.e. a specific tax) on the priceof salt that consumers pay?(b) Suppose the demand curve for butter is Q = 50 − 3P and the supply curve isQ = 2P. Suppose the government announces a per-unit tax of 1 on the priceof butter. Tax on butter can be seen as a ’fat tax’. What is the overall effectof a fat tax on the consumers? (c) If you were a policymaker and wanted to promote a fat tax in the UK, whatwould you cover in your policy campaign?
- Suppose that the long-run price elasticity of demand for gasoline is 0.55. Assume that the price of gasoline is currently $4.00 per gallon, the quantity of gasoline is 140 billion gallons per year, and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon. Suppose that in the long run the price of gasoline increases by $0.70 per gallon after the $1.00 excise tax is imposed. a. Using the midpoint formula, after the tax is imposed, the new quantity of gasoline demanded is year. (Enter your response rounded to two decimal places.) billion gallons perSuppose that the long-run price elasticity of demand for gasoline is - 0.40. Assume that the price of gasoline is currently $4.00 per gallon, the quantity of gasoline is 140 billion gallons per year, and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon. Suppose that in the long run the price of gasoline increases by S0.70 per gallon after the $1.00 excise tax is imposed. a. Using the midpoint formula, after the tax is imposed, the new quantity of gasoline demanded is billion gallons per year. (Enter your response rounded to two decimal places.)A firm derives revenue from two sources: goods X and Y. Annual revenues from good X and Y are $10,000 and $20,000, respectively. If the price elasticity of demand for good X is -4.0 and the cross-price elasticity of demand between Y and X is 2.0, then a 2 percent decrease in the price of X will: decrease total revenues from X and Y by $200. O leave total revenues from X and Y unchanged. increase total revenues from X and Y by $520. decrease total revenues for X and Y by $600.
- If a store increases its prices by 20% and its total revenue decreases by 10%, the demand it faces in this price range must be perfectly inelastic perfectly elastic inelastic unit elastic elastic Assume that the supply of corn is relatively price inelastic, while the demand for corn is relatively price elastic. If the government imposes a per-unit excise tax on the production of corn, the incidence or burden of the tax will fall entirely on sellers equally on both buyers and sellers more on buyers than on sellers entirely on buyers more on sellers than on buyers The absolute value of the price elasticity of demand for a good increases when the good has fewer substitutes the price of an input used to produce the good increases the good becomes a necessity consumers spend a greater portion of their budget on the good the good must be purchased as soon as the need arises (not possible to wait) O O O O1. The national gas oil distributor in an attempt to increase revenues and profit, has planned to increase its price by 4%, of course, the distributor is considering an 11% increase in income if the price elasticity of demand is 1.5 and the income elasticity of demand is +0.6 A. Would you expect an increase or decrease in quantity demand? B. Which one of the determinate has a strong power to influence the quantity demand of the national gas oil distributor? Explain your answerAssume that the market for house cleaning in Richmond is free and competitive, without taxes or externalities and that daily 2,000 housing units are cleaned. p* D Q* Q Q* Q Your friend suggests that it would be more efficient if less house cleaning took place in Richmond, say 1,500. (S)he argues that the less is cleaned, the greater the total surplus. Do you agree? O a. Hard to say. If demand is really elastic, then maybe. O b. Yes. Less cost is always more efficient. Oc No. If output is lower than equilibrium output, marginal social cost> marginal social benefit, resulting in DWL of underproduction. O d. No. If output is lower than equilibrium output, marginal social cost marginal social benefit. resulting in DWL of underproduction. O e. None of the answers offered are accurate.
- A. Using the mid point equation, calculate the price elasticity of demand for the market demand curve for a change from the equilibrium price of $4.00( show the equation and all calculations) is the demand curve elastic or I elastic for this price change? What would happen to the total market revenue if the price changed to $4.00 b. If a new firm(competitor) enters this market so that 6adsitional units are supplied at each price above $0, what would happen to the equilibrium price and quantity and the total market revenue of the market. Add a new market supply curve to your original graph and indicate the new equilibrium price and quantity on the appropriate axes.Imagine an excise tax levied on the sellers of cigarettes. Assume that the tax is $2.00 per pack. Assume that the market for cigarettes is perfectly competitive. a. Draw a downward sloping market demand curve for cigarettes and an upward sloping supply curve. Draw the demand curve to represent fairly inelastic demand with respect to price (but not completely vertical.) Draw the supply curve to represent fairly elastic supply with respect to price (but not completely horizontal). Label the horizontal axis as the quantity of packs of cigarettes and the vertical axis the price per pack. b. What happens to the equilibrium quantity of cigarette packs once the tax is imposed? c. Is there a reduction in consumer and producer surplus? If so, show the reduction in the graph. d. What happens to the price paid by the consumer and the price received by the seller in this transaction? Who bears more of the economic incidence of the tax?3. Demand and supply of cigarettes in California are: Supply: Qs = 2Ps + 20 Demand: QD = 200 – PD Calculate the market equilibrium price and quantity, assuming perfect competition. a. b. California decides to tax on cigarettes to fund preschool. It recognizes that a secondary benefit of the tax would be to reduce teen smoking. Suppose taxes of $15 per carton are placed on the consumption of cigarettes. By how much will the tax increase the price consumers pay? By how much will it decrease the price producers receive?