How much tax revenue would you expect government to raise

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The market demand for a rare mineral is Q = 1,300 – 10P and the market supply is Q = 6P. Suppose the government imposes a tax of $4 per pound on the consumer. TIP: First, read all parts of the problem. Before answering the question, I recommend you solve the problem mathematically, showing all work. Then use your solution to answer the questions, including graphical representation. a. What is the economic incidence of the $4 per-pound-tax relative to the absence of a tax? Based on your mathematical solution, graphically summarize only the results that are relevant for the incidence analysis. b. Conduct efficiency analysis of the $4 per-pound-tax relative to the absence of the tax. Based on your mathematical solution, draw a new graph to graphically summarize only the results that are relevant to the efficiency analysis of the tax. c. According to your analysis above, how much tax revenue would you expect the government to raise? d. Suppose mining companies discover all their mines are empty and the remaining supply of the rare mineral is all that is left. The market supply is now Q = 200. Note, you must show a separate graph for (i) and (ii) in order to earn full credit. (i.) How does your tax incidence analysis change in the face of the $4 per pound tax (as compared to part a)? (ii.) How does your efficiency analysis change in the face of the $4 per pound tax (as compared to part b)?

Reference no: EM131379891

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