Question 1: This question asks you to reconsider the model of optimal sin taxes that we studied in class with a different distribution of types. Assume that everyone has p = = 65 and y=40. Assume further that proportion of the population has ß = 0.85 while proportion 1 - o has = 1 (both types have 8 = 1). (a) As a function of and t, what is the uniform lump-sum transfer? (b) As a function of and t, derive an expression for social welfare. (c) Solve for the optimal tax. (d) How does the optimal tax depend on o? Provide some intuition for this answer.
Question 1: This question asks you to reconsider the model of optimal sin taxes that we studied in class with a different distribution of types. Assume that everyone has p = = 65 and y=40. Assume further that proportion of the population has ß = 0.85 while proportion 1 - o has = 1 (both types have 8 = 1). (a) As a function of and t, what is the uniform lump-sum transfer? (b) As a function of and t, derive an expression for social welfare. (c) Solve for the optimal tax. (d) How does the optimal tax depend on o? Provide some intuition for this answer.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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This question asks you to reconsider the model of optimal sin taxes that we studied in class with
a different distribution of types. Assume that everyone has p
65 and y= 40. Assume further that
proportion o of the population has B = 0.85 while proportion 1– o has B = 1 (both types have
8 = 1).
(a) As a function of o and t, what is the uniform lump-sum transfer?
(b) As a function of o and t, derive an expression for social welfare.
(c) Solve for the optimal tax.
(d) How does the optimal tax depend on ø? Provide some intuition for this answer.
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VIEWStep 2: Calculate the uniform lump-sum transfer (t) as a function of ρ.
VIEWStep 3: Derive an expression for social welfare (SW) as a function of ø and t.
VIEWStep 4: Solve for the optimal tax (t) that maximizes social welfare.
VIEWStep 5: Analyze how the optimal tax depends on ø.
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