The demand for snorkels is given by Q _s = 500 - 8Ps (where S stands for snorkels, not for supply), and the supply is given by Q _s = 200+4Ps. The demand for kayaks is given by Q _K = 650 - 6PK and the supply of kayaks is given by Q _K = 50 +1.5PK. Both goods are currently untaxed. However, the government needs to raise $500,000 by taxing both goods. What tax (Ramsey tax) should it levy on each of the two goods?

Answer rating: 100% (QA)

If it puts a tax of s on snorkels the equilibrium price will solve 500 8P s 200 4Ps s or 12Ps 300 ... View the full answer