suppose m=30, p1=2, p2=3.
the government wishes to impose a quantity (i.e. per unit) tax of $0.25 on good 1.
Question
Show the effect of impossing this tax in a clearly labelled graph containing before and after budget lines
Solution
Given
"M=30,P_1=2,p_2=3\\\\Budget\\space line \\\\30=2x_1+3x_2"
Tax of$0.25 on good I will lead to the following
"p_1" becomes "(2+0.25)=2.25"
Budget line
"30=2.25x_1+3x_2"
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