For the same economy as in Problem 3, suppose the government decides to levy a $T per
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For the same economy as in Problem 3, suppose the government decides to levy a $T per gallon tax on ice cream. Determine the partial equilibrium and general equilibrium effects of this tax on the prices and quantities of pie and ice cream as a function of T. Compute the derivative of the ice cream price and the pie price with respect to T, both for the partial equilibrium and the general equilibrium. Interpret the derivatives.
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The tax increases the price of ice cream by T2 in partial equilibrium in the ice cream market The ge...View the full answer
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