The city council of Chocoville decides to impose a per-unit tax on the chocolate production of...

 

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The city council of Chocoville¹ decides to impose a per-unit tax on the chocolate production of "Messy Chocolate Inc" to uecrease pollution. As a result, chocolate now becomes more expansive relative to other commodities in the market. Consumers shift some of their consumption towards other commodities due to the distortionary effect of the per-unit tax and also face a decline in their consumer surplus due to the increase in chocolate price. The total decline in consumer surplus due to the tax policy is larger than the tax revenue. 1.a. What is the name of the phenomenon described in the last sentence? (7.5 points) 1.b. In the city council, representatives of the "ChocoRights Union" argue that the city council should tax consumers instead of producers, and that the city council should also implement an alternative type of tax which does not cause the phenomenon mentioned above. What is the name of this alternative type of tax? (7.5 points) 1.c. Imagine there are two types of families in Chocoville in terms of their income: Rich families and poor families. If the city council were to implement the type of tax you found in 1.b., who would be happier about it: Rich families or poor families? (5 points) 1.d. Why? (10 points) The city council of Chocoville¹ decides to impose a per-unit tax on the chocolate production of "Messy Chocolate Inc" to uecrease pollution. As a result, chocolate now becomes more expansive relative to other commodities in the market. Consumers shift some of their consumption towards other commodities due to the distortionary effect of the per-unit tax and also face a decline in their consumer surplus due to the increase in chocolate price. The total decline in consumer surplus due to the tax policy is larger than the tax revenue. 1.a. What is the name of the phenomenon described in the last sentence? (7.5 points) 1.b. In the city council, representatives of the "ChocoRights Union" argue that the city council should tax consumers instead of producers, and that the city council should also implement an alternative type of tax which does not cause the phenomenon mentioned above. What is the name of this alternative type of tax? (7.5 points) 1.c. Imagine there are two types of families in Chocoville in terms of their income: Rich families and poor families. If the city council were to implement the type of tax you found in 1.b., who would be happier about it: Rich families or poor families? (5 points) 1.d. Why? (10 points)

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1a Excess burden or deadweight loss are two terms used to explain the last sentences situation This ... View the full answer