The market price of commodity A is 21 euros, the market equilibrium quantity is 5010 liters....

 

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The market price of commodity A is 21 euros, the market equilibrium quantity is 5010 liters. The government decides to impose a unit tax of 30 euros per liter on this commodity. It is known that the price elasticity of demand for this good is -0.1 and that the supply of the good is perfectly elastic. In addition, the income elasticity of demand for the good is 1.7. 1.1. Carry out a tax incidence analysis, both from the point of view of sellers and buyers (preferably using a graphical model of demand and supply when preparing the answer) and from the point of view of households (determining the distribution of the tax burden between them as the final bearers of the tax burden). (10p) 1.2. Is it fair to tax this item? Use a social justice principle or theory to support your answer. (5p) 1.3. Calculate how much tax revenue the country collects from this commodity. (5p) 1.4. Calculate the excess tax burden for each unit of tax revenue collected when this tax is imposed (if you could not find the tax revenue, find the excess tax burden in total, not per unit of tax revenue). (5p) The market price of commodity A is 21 euros, the market equilibrium quantity is 5010 liters. The government decides to impose a unit tax of 30 euros per liter on this commodity. It is known that the price elasticity of demand for this good is -0.1 and that the supply of the good is perfectly elastic. In addition, the income elasticity of demand for the good is 1.7. 1.1. Carry out a tax incidence analysis, both from the point of view of sellers and buyers (preferably using a graphical model of demand and supply when preparing the answer) and from the point of view of households (determining the distribution of the tax burden between them as the final bearers of the tax burden). (10p) 1.2. Is it fair to tax this item? Use a social justice principle or theory to support your answer. (5p) 1.3. Calculate how much tax revenue the country collects from this commodity. (5p) 1.4. Calculate the excess tax burden for each unit of tax revenue collected when this tax is imposed (if you could not find the tax revenue, find the excess tax burden in total, not per unit of tax revenue). (5p)

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11 Tax incidence analysis Graphical analysis The original market equilibrium is at a price of 21 and ... View the full answer