Five Minute Exercises > Taxes and Perfect Complements Preferences

Problem

Given:

The household always chooses 4 of the X good for each unit of Y
The supply of X is perfectly elastic at Px=$10
The supply of Y is perfectly elastic at Py=$6
The household spends $300 in total
The government levies a $1 tax on X and its price rises to $11

Determine:

The amount of revenue generated by the tax.

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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 11/07/2011