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Question: Consider two goods, widgets and gzots, which can be taxed to generate government revenue. The demand elasticity of widgets is 0.5 and of gzots is 1.2. For each good the supply elasticity is infinite (horizontal supply) and the equilibrium price before the tax is imposed is $2.25. The government proposes a tax of $0.25. What is the ratio of revenues to deadweight loss for each good? What principle does this demonstrate? If only one of the goods is to be taxed, which should it be?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M93117329

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