55% View Tools Window Help Tasks 8 and 9 2020.pdf (1 page) Q Search Task 9 Taxation The notorious government of Paradise Island plans to raise its tax revenue by introducing a quantity tax into the pizza market. It defends its policy by arguing that junk food is unhealthy and less pizza should be consumed. According to the implemented tax law, every single pizza seller has to pay t = $5 to the government for each pizza sold. Since 20.000 pizzas were sold in the absence of taxation, the government estimates the tax revenue to equal T= $100.000. In the press and on TV, there is much lobbyism against the proposed taxation scheme on the basis that the government tax leads the pizza price to double. The demand and supply schedules have been estimated as Demand : Q(P) 30,000 2,000OP Supply: Q(Pnet) 4000Pn net where P is the market price that a buyer pays for a pizza and Pnet is the net price that the seller receives after subtracting any taxes. After introducing the tax, the government wonders why its revenue is somewhat lower than expected. In addition, economists claim that there is a hidden cost of taxation due to price distortions that the government completely ignored. MacBook Air 000 O00

55% View Tools Window Help Tasks 8 and 9 2020.pdf (1 page) Q Search Task 9 Taxation The notorious government of Paradise Island plans to raise its tax revenue by introducing a quantity tax into the pizza market. It defends its policy by arguing that junk food is unhealthy and less pizza should be consumed. According to the implemented tax law, every single pizza seller has to pay t = $5 to the government for each pizza sold. Since 20.000 pizzas were sold in the absence of taxation, the government estimates the tax revenue to equal T= $100.000. In the press and on TV, there is much lobbyism against the proposed taxation scheme on the basis that the government tax leads the pizza price to double. The demand and supply schedules have been estimated as Demand : Q(P) 30,000 2,000OP Supply: Q(Pnet) 4000Pn net where P is the market price that a buyer pays for a pizza and Pnet is the net price that the seller receives after subtracting any taxes. After introducing the tax, the government wonders why its revenue is somewhat lower than expected. In addition, economists claim that there is a hidden cost of taxation due to price distortions that the government completely ignored. MacBook Air 000 O00

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter17: Taxation And Resource Allocation

Section: Chapter Questions

Problem 2DQ

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