Suppose that you work on a government tax committee. You have been given approval to levy a $5-per-unit tax on the producers of one of the following two goods: economics books or chemistry books. Supply and demand for both types of books are given below:
QD = 200 - 15P and QS = 5P for economics books
QD = 100 - 5P and QS = 5P for chemistry books
a. On which good should the government impose the tax if it wants to maximize government revenue? Show work by calculating tax revenue in each case.
b. On which good should the government impose the tax if it wants to minimize deadweight loss? Show work by calculating deadweight loss in each case.
c. Provide an economic explanation for your findings in parts a and b.