Country Z produces and consumes only two products: milk and bread. The price elasticity of demand of bread is Ed = −0.1 = 0.1 and the price elasticity of demand of wheat is Ed = −2 = 2 The government of country Z needs a significant amount of fund to tackle the current coronavirus situation. To obtain the fund, they have decided to impose a $ 5 tax on either the sellers of rice or the sellers of wheat. Currently, both the equilibrium prices of wheat and rice are $20 per unit respectively. The equilibrium quantities of wheat and rice are 10,000 units (per day) respectively. As the economic advisor of country Z, what would you advise the government of country Z. Which product should they tax to obtain the fund to tackle the coronavirus situation? Discuss in detail using the Model of Demand and Supply (your answer should include two well labeled graphs).
Country Z produces and consumes only two products: milk and bread. The price
bread is Ed = −0.1 = 0.1 and the price elasticity of demand of wheat is Ed = −2 = 2
The government of country Z needs a significant amount of fund to tackle the current coronavirus
situation. To obtain the fund, they have decided to impose a $ 5 tax on either the sellers of rice or the
sellers of wheat. Currently, both the
The
As the economic advisor of country Z, what would you advise the government of country Z. Which
product should they tax to obtain the fund to tackle the coronavirus situation? Discuss in detail using the
Model of Demand and Supply (your answer should include two well labeled graphs).
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