Px= ¢18; Py= ¢20; I=¢400; A=¢20; PL=¢10; Tx=¢30 and Suppose a lump sum tax of ¢4 is imposed by the Management of UPSA What is the government tax revenue?

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Chapter1: Making Economics Decisions
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University of Professional Studies, Accra (UPSA) was founded in 1965 as a private professional business education tuition provider. In 1999, by means of the Institute of Professional Studies Act, (Act 566), it became a tertiary institution with the mandate to provide tertiary and professional education in Accountancy, Management and related disciplines. The school has a student population of approximately 12,000. The school now have a state-of-the- art Students’ Center where food, snacks and drinks are served to students and staff. Nevertheless, a sizeable number of UPSA students patronize Auntie Ama’s (ATM) rice and beans food located at Madina Estate close to the Home-Made restaurant. In a quest to be able to predict the packs of rice Auntie Ama can sell in a month, she employed an economist to estimate the demand curve for her food. By sampling a total of 28 consumers, the economist estimated the demand function for Auntie Ama’s food as:

 

     Qxd= -175 – 1.5Px + 2.25Py + 0.5I + 0.75A

 

Where Qxd is demand for Auntie Ama’s food, Px is the price per pack of Auntie Ama’s food, Pyis the price per pack of Home-Made food, I is per capita income of UPSA community, and A is the amount of money spent on advertising by Auntie Ama. In addition, the economist also estimated the supply function for Auntie Ama’s food as:

 

Qxs = -25 + 3.5Px – 1.75PL + 0.25Tx

Where Qxs is the supply of Auntie Ama.’s food, Px is the price per pack of Auntie Ama’s food, PL is the average price of unskilled labor (¢ per hour), and Tx is the level of Technology. Now suppose the equilibrium values of the variables in the demand and supply functions are given as:

Px= ¢18; Py= ¢20; I=¢400; A=¢20; PL=¢10; Tx=¢30 and Suppose a lump sum tax of ¢4 is imposed by the Management of UPSA

  1. What is the government tax revenue?
  2. How would the agents share the tax per unit?
  3. Suppose the government introduces a price ceiling of GH¢20 per unit, what will be the deadweight loss to the
  4. What will be the cost to the government if price floor of GH¢30 is introduced.
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