The supply and demand sets for a product produced by The Firm are S = {(q,p)|q = bp — a}, D = {(q,p)|q = c - dp} where a, b, c, d are positive constants. Suppose that, under new regulations associated with recovering costs associated with the global pandemic, the government wishes to raise as much money as possible by imposing an excise tax on products such as that produced by The Firm. Show that the optimum value of this excise tax is given by bc - ad
The supply and demand sets for a product produced by The Firm are S = {(q,p)|q = bp — a}, D = {(q,p)|q = c - dp} where a, b, c, d are positive constants. Suppose that, under new regulations associated with recovering costs associated with the global pandemic, the government wishes to raise as much money as possible by imposing an excise tax on products such as that produced by The Firm. Show that the optimum value of this excise tax is given by bc - ad
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The supply and demand sets for a product produced by The Firm are
S = {(q, p)|q = bp − a}, D = {(q,p)|q = c − dp}
where a, b, c, d are positive constants. Suppose that, under new regulations associated
with recovering costs associated with the global pandemic, the government wishes to
raise as much money as possible by imposing an excise tax on products such as that
produced by The Firm. Show that the optimum value of this excise tax is given by
bc - ad
2bd
T* =
and derive an expression for the resulting government revenue.
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Follow-up Question
If the tax is imposed on the sellers, shouldn't the 'T' be used alongside the supply 'q' not the demand 'q'?
So would it not be q=b(p-T)-a?
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