Suppose the inverse demand curve for good A is given by the equation PA = 10 - QA/10, and the supply curve is perfectly elastic (horizontal)at $1. Good A is presently taxed at $2 per unit. Good B (which is independent of good A)has an inverse demand curve, PB = 5 - QB/20, and supply is also perfectly elastic at $1. Good B is untaxed.
(A)How much tax revenue is collected, and what is the excess burden of the $2 tax on A?
(B)How much revenue is collected if the tax on good A is reduced to $1 per unit and good B is taxe at $1 per unit?
(C)What is the total excess burden of taxing both goods at $1 per unit?
(D)Which tax system is preferable from the point of view of economic efficiency?

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The Answer of Suppose the inverse demand curve for good A is given by the equation PA = 10 - QA/10, and the supply curve is perfectly elastic (horizontal)at $1. Good A is presently taxed at $2 per unit. Good B (which is independent of good A)has an inverse demand curve, PB = 5 - QB/20, and supply is also perfectly elastic at $1. Good B is untaxed.
(A)How much tax revenue is collected, and what is the excess burden of the $2 tax on A?
(B)How much revenue is collected if the tax on good A is reduced to $1 per unit and good B is taxe at $1 per unit?
(C)What is the total excess burden of taxing both goods at $1 per unit?
(D)Which tax system is preferable from the point of view of economic efficiency?

Suppose the Inverse Demand Curve for Good a Is Given