In order to raise revenues, the government has decided to levy taxes (T) on luxury goods...

In order to raise revenues, the government has decided to levy taxes (T) on luxury goods purchased by taxpayers with earnings higher than the average income. The demand and supply curves of yacht before taxes are follows: (20 points total) QS=0.5P QD=600-P A. Compute the existing equilibrium price (P*) and quantity (Q*). (2 points) B. i. State the new equation of demand curve. (2 points) ii. Compute new equilibrium quantity (Q’). (2 points) iii. Compute market price received suppliers (PS). (1.5 points) iv. Compute the price paid by consumers (PD) after taxation. (1.5 points) C. Compute consumer surpluses (CS), producer surplus (PS), and total surplus (TS) before tax. (2 points) D. Compute consumer surpluse (CS’), producer surplus (PS’), tax revenues (TR) and total surplus (TS’) after tax. (T=300) (3 points) E. Estimate dead-weight loss (DWL) of a tax (T=300) and state why taxes cause dead- weight loss. (3 points) F. State the function of tax revenues with respect to T. Draw the graph and its implication. Evaluate the tax policy at T=400. (3 points)

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Rahul Sunny answered 1 year ago

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