Suppose instead that Demand was perfectly inelastic and the market still cleared, absent any tax, at...
Suppose instead that Demand was perfectly inelastic and the market still cleared, absent any tax, at $0.90 and 2000. To raise the same amount of tax revenue, what must the tax be?
Homework Answers
Answer:
Tax revenue = 1000 * 0.60 = 600. To raise the same amount of tax revenue, the tax should be $600/2000 = $0.30. Thus new demand (consumer/market) price will be $1.20 (= $0.90 + $0.30 = $1.20); and new supply (effective producer) price will also be $1.20
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Suppose instead that Demand was perfectly inelastic and the
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