Problem set 3

Problem set 3 - Econ 301 Spring 2010 Problem set 3 Due...

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Econ 301 Spring 2010 Problem set 3 Due February 5 1. Imagine that the government imposes a new specific tax of $0.10 per can on the consumption of soft drinks (Coca-Cola, Pepsi and all other soft drinks) . The objective of the tax is to collect money to pay for government’s expenses and reduce the consumption of soft drinks, which are said to contribute to the prevalence of obesity. The price of a can of soft drink is $1.50 and one million cans of soft drink are sold each day in the United States. You know that the elasticity of demand for soft drinks is 0.85 and that the elasticity of supply is 1.50. 1 a. What is the effect of the tax on the price paid by consumers and the price received by suppliers? b. What is the share of the tax that is paid by consumers and the share of the tax that is paid by the suppliers. c. What is the quantity of soft drink sold each day after the imposition of the tax? 2. Consider that the utility of a representative consumer is given by
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This note was uploaded on 08/01/2011 for the course ECON 301 taught by Professor Corinnelanginier during the Summer '07 term at Iowa State.

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