Unformatted text preview: burden? There is a fixed supply of land (The supply of land is perfectly inelastic). A 10% land tax has no effect on the equilibrium quantity. It has no excess burden. 3. Explain why the excess burden of a lump-sum tax will always be zero. A lump-sum tax does not affect the marginal cost of the firm or the marginal benefit of the consumer. Market equilibrium quantity remains unchanged. Therefore the excess burden is zero. 4. The annual demand for liquor is given by Q D = 50 – 20P, where P is the price, and Q D is the quantity demanded. The supply of liquor is given by Q S = 30P. Suppose that a $1 per litre tax is levied on the price of liquor received by sellers. Calculate the excess burden of the tax, the amount of tax revenue collected, and the incidence of tax between producers and consumers. Excess burden = 6. Tax revenue = 18. Producers pay 7.2, and consumers pay 10.8...
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This note was uploaded on 04/15/2010 for the course ECON 290 taught by Professor J liu during the Spring '06 term at Simon Fraser.
- Spring '06
- J Liu