Home » Suppose the government can impose taxes on only two goods, X and Y. The compensated demand curve for X is Qx = 60 – 10Px and the compensated demand…

# Suppose the government can impose taxes on only two goods, X and Y. The compensated demand curve for X is Qx = 60 – 10Px and the compensated demand…

Suppose the government can impose taxes on only two goods, X and Y. Thecompensated demand curve for X is Qx = 60 – 10Px and the compensated demand curvefor Y is Qy = 60 – 20Py . The supply curve of each goods is perfectly elastic at a price of\$1.a) What should be the ratio of ad valorem tax rates, tx/ty , at the optimum?b. Calculate the tax optimal tax rates if the government must raise \$50 in revenues. You canuse the compensated demand curves as also representing the normal demand curves inthis question (i.e. no income effects are present)

Suppose the government can impose taxes on only two goods, X and Y. Thecompensated demand curve for X is Qx = 60 ­ 10Px and the compensated demand curvefor Y is Qy = 60 ­ 20Py . The supply…

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