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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

The demand for beer is more elastic than the demand for milk. Would a tax on beer or a tax on milk have a larger deadweight loss? Why?

To determine
The deadweight loss and elasticity of demand.

Explanation

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The main types of taxes include the income tax, wealth tax and the professional tax.

When a tax is imposed on the commodity, it will lead to increase in the price from the equilibrium level and the price to the consumer rises will reduce the consumer surplus. The price received by the sellers also declines which will also reduce the producer surplus in the economy...

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