Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 14, Problem 14.8P
a)
To determine
To discuss the reason for lump-sum subsidy not helping government achieve its goal.
b)
To determine
To show graphically how per-unit subsidy will help the government achieve its goal.
c)
To determine
To show that
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Suppose the price elasticity of demand for smartphones is 0.5 (absolute value), while the price elasticity of supply is 1.9. If the government imposes a per-unit tax of $100 on the sellers of smartphones, how will the price and quantity transacted of smartphones change? Will the sellers or the buyers bear a larger tax burden? Will the market be able to achieve economic efficiency after the tax is imposed? Explain with a diagram.
Please answer the following, a diagram and one paragraph should help support your answer.
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