According to estimates by Goolsbee and Petrin , the elasticity of demand for basic cable service is 0.51, and the elasticity of demand for direct broadcast satellites is 7.40. Suppose that a community wants to raise a given amount of revenue by taxing cable service and the use of direct broadcast satellites. If the community’s goal is to raise the money as efficiently as possible, what should be the ratio of the cable tax to the satellite tax? Discuss briefly the assumptions behind your calculation.
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