4. Suppose that the government can raise the same amount of money by imposing a tax of $5 per shirt sold in years 1 and 2 or a tax of $10 per shirt sold in year 1 and $0 per shirt sold in year 2. Draw a supply-demand diagram for shirts for year 1 and another for year 2.
a. Impose a tax of $5 per shirt in each year and show on the graph the resulting excess
burden.
b.   Impose a tax of $10 per shirt in year 1 and $0 in year 2. Show graphically the excess burden.
c.   In which case is the excess burden higher? Why?

Answer rating: 100% (QA)

a To illustrate the effects of a 5 per shirt tax in each year lets draw a supplydemand diagram for s... View the full answer