Suppose the market demand curve for beer is described by the equation Q D b = 600

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Suppose the market demand curve for beer is described by the equation QD= 600 − 15Pb, where QDis the number of cases of beer and Pb is the price. The supply curve is given by QD= 10Pb.
a. Calculate the elasticities of demand and supply at the equilibrium quantity.
b. Suppose the government introduces an excise tax of 15 percent per case of beer. Determine the excess burden of this tax using the formula in footnote 7 and the elasticities found in part (a).
c. Calculate the tax revenues and the average excess burden.

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Public Finance In Canada

ISBN: 9781259030772

5th Canadian Edition

Authors: Harvey S. Rosen, Ted Gayer, Jean-Francois Wen, Tracy Snoddon

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