Reference no: EM131675081

The demand for a pack of 12 golf balls in Albuquerque is P=1000-.1Q, with supply P=30. The demand for golf clubs is 500-.2Q with supply P=75. The city government wishes to impose per-unit taxes on these goods in order to raise $100,000 in revenue to pay for improvements to the water supply system connected to the local golf courses. The government wishes to make this happen by minimizing overall inefficiencies resulting from the taxes. What are the optimal tax rates that the government should impose on each good? 

[Note: This is a challenging but very doable problem that pulls together a lot of the material covered in Lesson 5. Don't be surprised or discouraged if you spend several hours working it out. Think carefully about how you set up your equations. You'll want to concentrate particularly on a) What tax scheme minimizes inefficiencies? What is the key equation for such a scheme, especially in light of the perfectly elastic supply curves? We did the case where P=1 in lecture, and you did it for any price P in a practice problem. b) What equation describes how much revenue the government makes after the taxes are imposed? You will ultimately get a system of equations you can solve with conventional algebra. Remember the quadratic formula? You'll need that. As an approved cheat, you can use the website Wolfram Alpha to do that part for you.]