# Calculate the government tax revenue and the portion

• Homework Help
• 19
• 100% (1) 1 out of 1 people found this document helpful

Course Hero uses AI to attempt to automatically extract content from documents to surface to you and others so you can study better, e.g., in search results, to enrich docs, and more. This preview shows page 10 - 13 out of 19 pages.

Calculate the government tax revenue, and the portion of the tax paid by the consumersvs. the portion absorbed by the producers (“tax incidence”). What does the division ofthe tax burden depend on? Illustrate in a diagram and explain briefly.
c)Suppose next that the government changes its mind about the value of the product toconsumers, abolishes the tax, and instead grants a subsidy of \$1 per unit to all producers.Calculate the after-subsidy equilibrium quantity11
What is the total cost of the subsidy to the government?
Illustrate the impact of the subsidy in a two-part diagram, where one part representsthe market and the other part represents a typical firm (assume all firms in the industryare identical). Who benefits from the subsidy in the short run? Who benefits in thelong run? Explain.
Problem 7 (4 marks)Calloway Shirt Manufacturers sells knit shirts in two sub-markets.In one sub-market, the shirtscarry Calloway's label and breast logo and receive a substantial price premium.The other sub-market is targeted toward more price conscious consumers who buy the shirts without a breastlogo, and the shirts are labeled with the name Archwood.The retail price of the shirts carryingthe Calloway label is \$42.00 while the Archwood shirts sell for \$25. Calloway's market researchindicates a price elasticity of demand for the higher priced shirt of -2.0, and the elasticity ofdemand for the Archwood shirts is -4.0.The research suggests that both elasticity are constantover broad ranges of output.a)Are Calloway's current prices optimal?

Course Hero member to access this document