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Consider the market for tennis shoes.




Consider the market for tennis shoes. Supply of tennis shoes is a horizontal curve and demand is a linear, downward-sloping curve. Currently the government imposes a tax of t on every pair of tennis shoes sold and does not tax other goods. The government is considering a plan (the Federer Plan) to double the tax on tennis shoes, while leaving other goods untaxed.;a) Show the pre-Federer Plan situation graphically (a sketch will do).;b) What will happen to the deadweight loss of the tax as a result of the Federer Plan? Explain, and show this in a new diagram.


Paper#28535 | Written in 18-Jul-2015

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