Homework answers / question archive / The government is considering to impose a per unit tax of $2

The government is considering to impose a per unit tax of $2

Economics

Share With

1. The government is considering to impose a per unit tax of $2.50 on DVDs. Market surveys have shown that the demand for DVDs in Malaysia is perfectly elastic. If the supply of DVDs is a typical upward sloping curve, show graphically the impact of this per unit tax on the market for DVDs. How will the tax burden be shared between buyers and sellers of DVDs?
   3. marks)

2. Assume Salina has $10 to spend on pizza, ice cream sundaes, or some combination of the two. Assume the price of a slice of pizza (P_P) is $2, and the price of ice cream sundae (P_I) is $3. The total utility from consuming various quantities of pizza and ice cream sundaes are given in the table below.

            Knowing that Salina is a utility maximizer, use the information in the table above to predict the quantities of slices of pizza and ice cream sundaes Salina would purchase with $10. Compute the total utility she would enjoy with that purchase. Show your work. (5 marks)