0
$\begingroup$

Consider an economy with 1000 identical consumers, each with a utility function given by $2\sqrt(x) + m $ , and 10 identical firms, each with a cost function given by $c(q)=aq$ , where $a$ is a positive constant.

Suppose that consumers are required to pay a per-unit tax of $a$ dollars per-unit purchased, where $a$ is the same constant that appears in the cost function. Suppose also that all the revenue raised by the tax is wasted (i.e., it is not put to productive use or given back to the consumers).

QUESTION. What is the expression for the deadweight loss in the market (as a function of $a$ )?

In the QUESTION ABOVE HOW DO WE INCLUDE THE WASTAGE OF TAX IN THE MODEL? HOW DOES WASTAGE OF TAX AFFECT THE UTILITY IN EQUILIBRIUM AND WITH TAXES?

$\endgroup$

Your Answer

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Browse other questions tagged or ask your own question.