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The country of Taxmania produces only two commodities: rice and caviar. The poor spend all their income on rice, whereas the rich purchase both goods. Both demand for and supply of rice are quite inelastic. In the caviar market, both supply and demand are quite elastic. Which good would be heavily taxed if Taxmanians cared mostly about efficiency? What if they cared mostly about vertical equity?

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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 17, Problem 5TY
Textbook Problem
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The country of Taxmania produces only two commodities: rice and caviar. The poor spend all their income on rice, whereas the rich purchase both goods. Both demand for and supply of rice are quite inelastic. In the caviar market, both supply and demand are quite elastic. Which good would be heavily taxed if Taxmanians cared mostly about efficiency? What if they cared mostly about vertical equity?

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