Richard and Henry like soda drinks. Henry's demand for soda is: P=10-Q; the demand for Richard is P=5.5-0.5Q. The supply of soda cans is perfectly elastic at P=1. The government imposes a tax on soda cans equal to t=$1 per can. a) Which consumer will suffer the greater loss of consumer surplus in response of the tax? why? b) Would the government prefer all consumers to be like Henry or like Richard if the government wants to maximise tax revenue? Why? Accompany your answer with a diagram to illustrate your argument.
Richard and Henry like soda drinks. Henry's demand for soda is: P=10-Q; the demand for Richard is P=5.5-0.5Q. The supply of soda cans is perfectly elastic at P=1. The government imposes a tax on soda cans equal to t=$1 per can. a) Which consumer will suffer the greater loss of consumer surplus in response of the tax? why? b) Would the government prefer all consumers to be like Henry or like Richard if the government wants to maximise tax revenue? Why? Accompany your answer with a diagram to illustrate your argument.
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter5: Price Elasticity Of Demand And Supply
Section: Chapter Questions
Problem 25SQ
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Richard and Henry like soda drinks. Henry's
a) Which consumer will suffer the greater loss of
b) Would the government prefer all consumers to be like Henry or like Richard if the government wants to maximise tax revenue? Why? Accompany your answer with a diagram to illustrate your argument.
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