1. Given the demand schedule p = 180 − 8q and the supply schedule p = 25 + 2q, what level of...

Question

1. Given the demand schedule p = 180 − 8q and the supply schedule p = 25 + 2q, what level of per-unit tax would maximize the government’s tax yield?

2. Change one of the parameters in Question 1 above and work out the new answer.

3. Assume a market has the demand function q = 40−0.5p and the supply function q = 2p − 4. The government currently imposes a per-unit tax of £3. If this tax is slightly increased will the tax yield rise or fall?

Robert · Accepted Answer

1. Demand: p = 180 – 8q; supply: p = 25 + 2q 
We need to derive a function for q in terms of the tax t. 
25 + 2q + t = 180 – 8q 
10q =155 – t 
q = 15.5 – 0.1t 
Tax yield (TY) = q x t = (15.5-0.1q)*t = 15.5t – 0.1q^2 
So, the rate of change of TY with respect to t = dTY/dt 
d(TY)/d(t) = 15.5 – 0.2t 
To maximize tax,

1. Given the demand schedule p = 180 − 8q and the supply schedule p = 25 + 2q, what level of per-unit tax would maximize the government’s tax yield? 2. Change one of the parameters in Question 1 above...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment