Homework4key - Econ 1 Winter 2008 Dr Narag 1 Homework 4...

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Econ 1 Winter 2008 Dr. Narag 1 Homework 4: Surplus (1) The markets for good 1 and good 2 are pictured below. The demand curves for both goods are identical, and they have the same market price, p 0 and market quantities, Q 0 . The government imposes the same excise tax, t, an on each good. (a) In which market will the burden of the tax on the consumer be greater? Why? The burden on the consumer will be the greatest on good 1, because the supply curve is more elastic. (b) Which market will suffer the greater deadweight loss? No need to explain, just give your answer. Good 1 (c) On the graph, show the tax revenue raised by the government by the tax in each market (make sure you draw t the same size in each market). In which market does the government raise more revenue? The government raises the most tax revenue in the market for good 2, because the supply curve is more inelastic and therefore the quantity consumed decreases less as a result of the tax.
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