Question ONESuppose the Zambian legislature passes a law requiring that 1 billion Kwacha a year be raised viatwo new taxes, one on good X and another on good Y, but leaves the choice up to the FinanceMinister on what rates to choose for tx and ty. Suppose that these goods are produced bycompetitive industries at constant marginal cost and suppose the demand and supply curves are foreach kind of good are known, and the goods are neither complements nor substitutes.(a) How should the governor choose the various tax rates to minimize the total excess burdenraised by the new taxes?[10 Marks](b) Finally, suppose that demand for good X is less elastic than demand for good Y. Does thatmean the tax rate on X will be higher or lower?[7.5 Marks](c) If the reason X demand is less elastic is that richer people consume more X and they canafford the extra taxes, does this undermine or enhance the case for the tax scheme youproposed?[7.5 Marks]

(a) The governor should fix the tax rates on items X and Y so that the tax burden is heavier on the…

Answered: Question ONE Suppose the Zambian…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.8P

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May and Raj me the only two growers who provide organically grown corn to a local grocery store. They know that if they cooperated and produced less corn, they could raise the price of the com. If they work independently, they will each earn 100. If they decide to work together and both lower their output, they call each earn 150. If one person lowers output and the other does not, the person who lowers output will earn $1 and the other person will capture the entire market and will earn 200. Table 10.6 represents the choices available to Mary and Raj. What is the best choice for Raj if he is sole that Mary will cooperate? If Mary thinks Raj will cheat, what should Mary do and why? What is the prisoners dilemma result? What is the preferred choice if they could ensure cooperation? A = Work independently; B = Cooperate and Lower Output. (Each results entry lists Rajs earnings first, and Marys earnings second.)
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