2. Suppose that the compensated demand for goods X and Y are given by X = 400 - 2Px and Y = 400 - Py, respectively. The two goods are unrelated commodities, and the price of each good is $40. When a tax at percentage rate of 0.2 is levied on good X, what is the optimal tax rate for good Y to minimize overall excess burden?

2. Suppose that the compensated demand for goods X and Y are given by X = 400 - 2Px and Y = 400 - Py, respectively. The two goods are unrelated commodities, and the price of each good is $40. When a tax at percentage rate of 0.2 is levied on good X, what is the optimal tax rate for good Y to minimize overall excess burden?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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