Suppose the demand is a typical downward sloping linear curve and the supply curve is perfectly...

Suppose the demand is a typical downward sloping linear curve and the supply curve is perfectly price elastic. If 3 million tickets are currently sold at a price of $5, approximately how much tax revenue could the government generate from a $1 per unit tax on sellers? The arc-price elasticity of demand between P=$5 and the new equilibrium price is -1.0 (Note: dQ = Change in Q and dP=Change in P)

i. Draw a completely labeled D&S graph to show the market described above.

ii. Calculate new quantity and the tax revenue. Please show your calculations.

Expert Solution

Please find the answer in the image attached.

Rahul Sunny answered 2 years ago

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