Homework203_4AK(F_09)

Homework203_4AK(F_09) - Homework #4 Answer Key 1. The...

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Homework #4 Answer Key 1. The following excerpt was taken from Rachel Emma Silverman. "The Nose-Job Tax," The Wall Street Journal , June 1, 2005. Some state governments are considering imposing a tax on a number of cosmetic surgery procedures, from face-lifts to liposuction to Botox injections. This has drawn protests from plastic surgeons who argue that they will be adversely affected by such a tax. a. Show graphically and explain the effects of such a tax on the market for Botox. The following diagram shows the effect of a tax on the market for botox. Because botox is considered a luxury for most people, the demand for botox is price elastic (flatter). P 1 , Q 1 shows the initial price-quantity combination before a tax. After a tax is imposed, S shifts up by the size of the tax. Consequently, buyers pay a new price (P B ), and sellers receive a new price after tax is deducted (P S - known as the effective price). As can be seen, the distance between the initial price and the new price buyers pay is smaller than the distance between the initial price and the effective price for sellers. Therefore, providers of botox (plastic surgeons) bear the burden of the
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This note was uploaded on 05/05/2010 for the course ECN 203 taught by Professor Evensky during the Fall '07 term at Syracuse.

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Homework203_4AK(F_09) - Homework #4 Answer Key 1. The...

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