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Given an ad valorem tax rate of t, the gap between the price consumers pay and what suppliers receive is given by PD= (1 +t) PS.

One way to generate disequilibrium prices in a simple model of supply and demand is to incorporate a lag into producer’s supply response. To examine this possibility, assume that quantity demanded in period t depends on price in that period (QDt= a − b Pt) but that quantity supplied depends on the previous period’s price

The development of optimal tax policy has been a major topic in public finance for centuries. Probably the most famous result in the theory of optimal taxation is due to the English economist Frank Ramsey, who conceptualised the problem as how to structure a tax system that would collect a given amount of revenues with

Suppose two individuals A and B each have 10 hours of labour to devote to producing either ice cream (x) or chicken soup (y). A’s utility function is given by whereas B’s utility function is given by The individuals do not care whether they produce x or y, and the production function for each good

In the country of Rotorooa there are two regions, A and B. Two goods (x and y) are produced in both regions. Production functions for region A are given by here lx and ly are the quantities of labour devoted to x and y production, respectively. Total labour available in region A is 100 units; that is,

Suppose that Bear Grylls produces and consumes fish (F) and coconuts (C). Assume that, this month, he has decided to work 200 hours and is indifferent as to whether he spends this time fishing or gathering coconuts. Bear Grylls’ production for fish is given by and for coconuts by where lC and lF are the number of

The relationship between social welfare functions and the optimal distribution of individual tax burdens is a complex one in welfare economics. In this problem, we look at a few elements of this theory. Throughout we assume that there are m individuals in the economy and that each individual is characterised by a skill level, ai,

In South Africa the government introduces a child support grant to unemployed families of R6000 per year. This grant is reduced by R0.75 for each R1 of other income the family has. a. How much in welfare benefits does the family receive if it has no other income? If the head of the family earns

The elements of labour supply theory can be derived from an expenditure-minimisation approach. Suppose a person’s utility function for consumption and leisure takes the Cobb–Douglas formThen the expenditure-minimisation problem is a. Use this approach to derive the expenditure function for this problem. b. Use the envelope theorem to derive the compensated demand functions for consumption

A monopsony in the garment district faces a supply curve for workers given by where l is the number of workers hired and w is their hourly wage. Assume also that the firm’s labour demand (marginal revenue product) curve is given by a. How many workers will the firm hire to maximise his profits, and