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3. The government of a small country needs to raise money to fund school improvements. It is considering implementing a tax on rice to raise money. (a) Using a supply and demand diagram, explain why the tax will cause a deadweight loss. (b) Rice is an important part of its citizens' diet and has a demand elasticity of –0.2. Cars are a luxury good and have a demand elasticity of –3. Assume both rice and cars are imported into the country so supply is perfectly elastic. Which tax will cause a greater deadweight loss? Explain why using economic arguments. Which good do you think the government should tax? Why? Your explanation can incorporate whatever reasons you think are important.

3. The government of a small country needs to raise money to fund school improvements. It is considering implementing a tax on rice to raise money. (a) Using a supply and demand diagram, explain why the tax will cause a deadweight loss. (b) Rice is an important part of its citizens' diet and has a demand elasticity of –0.2. Cars are a luxury good and have a demand elasticity of –3. Assume both rice and cars are imported into the country so supply is perfectly elastic. Which tax will cause a greater deadweight loss? Explain why using economic arguments. Which good do you think the government should tax? Why? Your explanation can incorporate whatever reasons you think are important.

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter5: Elastic And Its Application
Section: Chapter Questions
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3. The government of a small country needs to raise money to fund school improvements. It is considering implementing a tax on rice to raise money. (a) Using a supply and demand diagram, explain why the tax will cause a deadweight loss. (b) Rice is an important part of its citizens' diet and has a demand elasticity of –0.2. Cars are a luxury good and have a demand elasticity of –3. Assume both rice and cars are imported into the country so supply is perfectly elastic. Which tax will cause a greater deadweight loss? Explain why using economic arguments. Which good do you think the government should tax? Why? Your explanation can incorporate whatever reasons you think are important.
Transcribed Image Text:3. The government of a small country needs to raise money to fund school improvements. It is considering implementing a tax on rice to raise money. (a) Using a supply and demand diagram, explain why the tax will cause a deadweight loss. (b) Rice is an important part of its citizens' diet and has a demand elasticity of –0.2. Cars are a luxury good and have a demand elasticity of –3. Assume both rice and cars are imported into the country so supply is perfectly elastic. Which tax will cause a greater deadweight loss? Explain why using economic arguments. Which good do you think the government should tax? Why? Your explanation can incorporate whatever reasons you think are important.
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