Daniel and Jacob like soda drinks. Jacob's demand for soda is: P=10-Q; the demand for Daniel is P=5.5-0.5Q. The supply of soda cans is perfectly elastic at P=1. The government imposes a tax on soda cans equal to t=$1 per can. a) Which consumer will suffer the greater loss of consumer surplus in response of the tax? why? b) Would the government prefer all consumers to be like Jacob or like Daniel if the government wants to maximise tax revenue? Why? Accompany your answer with a diagram to illustrate your argument.

Daniel and Jacob like soda drinks. Jacob's demand for soda is: P=10-Q; the demand for Daniel is P=5.5-0.5Q. The supply of soda cans is perfectly elastic at P=1. The government imposes a tax on soda cans equal to t=$1 per can. a) Which consumer will suffer the greater loss of consumer surplus in response of the tax? why? b) Would the government prefer all consumers to be like Jacob or like Daniel if the government wants to maximise tax revenue? Why? Accompany your answer with a diagram to illustrate your argument.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter19: Elasticity

Section: Chapter Questions

Problem 14QP

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