The excess burden of a tax is given by the formula: W=0.572 Esp pi Es-E Where: excess burden of the tax w T: O" P" unit

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The Excess Burden Of A Tax Is Given By The Formula W 0 572 Esp Pi Es E Where Excess Burden Of The Tax W T O P Unit 1 (26.58 KiB) Viewed 47 times

The excess burden of a tax is given by the formula: W=0.572 Esp pi Es-E Where: excess burden of the tax w T: O" P" unit tax rate pre-tax quantity of the taxed good pre-tax market price of the taxed good price elasticity of supply price elasticity of demand Es ED A Suppose the goverment imposes a tax on chocolate. IfT. AED 0.5.0*200, P-2. Es3 and Ep-5. Calculate the excess burden of the tax on chocolate (2 points) B. Assume the government is considering the extension of the same unit tax to bread. The price elasticity of demand for bread is Ep = -0.5, while the supply of bread is unit elastic (Es-1). Also assume the same quantity and price (Q'- 200, P-2) Calculate the excess burden of the tax on bread. (2 points) C. If the annual tax revenue from chocolate is AED 150 and from bread AED 100. Based on your answers to A and B above, calculate the efficiency loss ratio for the tax on chocolate (1 point) and the tax on bread. (1 point) D. From an efficiency point of view, would you select chocolate or bread to tax? Explain (2 points) Would your decision still be the same from an equity point of view? Explain (2 points)