Question

The country of Oceania consists of two islands, East Island and West Island. The president of Oceania needs to raise revenues for government programs and is considering imposing an excise tax on coconuts. People rarely travel between East and West Island, and there is no trade between the islands, so the coconut markets on the two islands are entirely separate

The president decides that she will impose a tax of $3 per bucket on sales of coconuts, to be paid by consumers, on one of the two islands. c. If she decides to impose the tax on East Island, what price will East Island consumers pay for a bucket of coconuts after the tax is imposed? What price will producers receive for each bucket sold? Do consumers or producers bear more of the burden of this tax? Explain your answer.

Answer 1

PFA the solution

Consider the given information, there is no trade benen hevo islands. & Tan of 43 has been imposed on consumers East Islands. Supply P3--- - - - 0 Q" - won the last imposed, demand curve Stufes downward. now. Initial equilibrium price px So, consumer will pay new price of P't3 but producer will get new price p' Burdin sharing phia Before Tox sgter Tan Tan Burden consumers Pay pl P'+3 (P²43)-pt Producen pay p a The fan burden depends on the elasticities of Supply and demand Junction