prob_set_01

prob_set_01 - University of California, Davis Department of...

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University of California, Davis Department of Economics ECONOMICS 131 Spring 2008 L. Jay Helms Problem Set #1: Tax Incidence and Progressiveness 1. Partial Equilibrium Tax Incidence Under Competition Suppose the market for root beer is characterized by a downward sloping demand curve and an upward sloping supply curve. When there is no taxation, the price is $2.00 per six pack. Now suppose that Congress imposes a 50¢ per six-pack tax on root beer, to be paid by the seller . a. Use a fully labeled diagram to explain how the prices faced by the sellers and buyers of root beer will be affected by the imposition of this tax. (A graphical, not a numerical, result is expected here.) b. Suppose instead that the Root Beer Producers’ Association manages to get the law changed so that the 50¢ tax is paid by the buyer (in addition to the posted price) rather than by the seller. Use a diagram to explain how this change affects the economic incidence of the tax, contrasting your results to those from part (a).
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prob_set_01 - University of California, Davis Department of...

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