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by: Bridie Batz

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2

# Economics of the Public Sector ECON 4211

Marketplace > University of Colorado at Boulder > Economcs > ECON 4211 > Economics of the Public Sector
Bridie Batz

GPA 3.53

Rubinchik-Pessach

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COURSE
PROF.
Rubinchik-Pessach
TYPE
Class Notes
PAGES
2
WORDS
KARMA
25 ?

## Popular in Economcs

This 2 page Class Notes was uploaded by Bridie Batz on Friday October 30, 2015. The Class Notes belongs to ECON 4211 at University of Colorado at Boulder taught by Rubinchik-Pessach in Fall. Since its upload, it has received 29 views. For similar materials see /class/232134/econ-4211-university-of-colorado-at-boulder in Economcs at University of Colorado at Boulder.

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Date Created: 10/30/15
Econ 4211 Answers to some review questions May 2 2008 1 Consider a market with the following supply and demand Qd 10 Pa P 7 2 Q 7 P 3 a Calculate the initial equilibrium in this market 10 7 P 7 Solution is P 7 8 Q 7 2 b Suppose a unit tax of one dollar is imposed on consumers Calculate the equilibrium quantity and the price paid by consumers and price received by producers i0 7 Pp 1 7ij Solution is P 7 12 7 Q 7 10 7 7 Z c Will your answer to the previous question change if the unit tax is levied on producers No Producer s price is his marginal cost of production 3Qs2PpMCPC71 So in the new equilibrium 10 7 PC P 73172 Solution is PC 33 7 29 7 33 7 7 Tippifv florriz d Who bears higher burden of the tax Why Demonstrate your an7 swer using calculated elasticity of supply and demand Consumer s price rises by producer s price falls by indicating higher burden Indeed elasticity of demand is Q dP g 71 i 7 74 which is higher in absolute value than the supply elasticity Q d P g so demand is relatively more elastic therefore more tax is shifted onto the producer 2 The demand for snorkels in Bergama is given by QS 500 7 8P3 the supply is perfectly elastic with marginal cost of production 10 The de7 mand for kayaks is Qk 650 7 61 their supply is perfectly elastic with marginal cost of production 15 Both goods are currently untaxed but the government needs to raise 500 in tax revenues What tax should be levied on each of the two goods assuming no income effects in both markets By Ramsey rule7 D I luau s a 392 Also tlie revenue requirement is 500 tkPka tk tSPSQS is 7 where Pk 157 PS 10 corresponding marginal cost Qk 1k 7 650 7 6Pk 1 1k 7 650 7 6 15 1 1k 7 560 7 90 Q3 is 7 500 7 8P3 1 13 7 500 7 8 10 1 13 7 420 7 8023 D Q 5007810 5 78 78 7336 s P 10 D 7 7 Q 7 7 6507mm 7 7 ak7 6Pg7 6 15 7 224 To summarize7 the two equations determining the tax rates are tk 7 7336 7 g t 7 7224 7 27 500 15hC 560 7 90th 10ts 420 7 80 From the rst condition tk gts use that in the second condition to get 500 7 151ng 560 7 90 1 gzs1ozs 420 7 8023 There are two solutions rst one is not between zero and one is 3tg 7x109826 4 347 97 second one is is 7 109826 2 996 7 X 10 2 This corresponds to the tax rate of 2997 on snorkels and7 given tk g 2 996 7gtlt 10 2 4 495 1 X 10 27 the tax on kayaks should be 4495

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