I know there are many good professor here Please HELP 1Solut

I know there are many good professor here>.< Please HELP!!!

1.

Solution

1. Laffer curve depends on the tax rate. Laffer curve depicts that tax revenue increase with increase in tax rate till a point after which raise in tax rate begins to reduce the tax revenue.

Answer to the second part: Depending on which side of laffer curve a country is, increase or decrease in tax rate will affect the demand/supply

2.a) $2.25 will be equilibrium price where demand will be equal to supply. 4 cappucino will be equilibrium quantity

b) With excise duty, equilibrium price will be $1.75 and 2 cappucino will be supplied. With excise duty, it will be like consumers are willing to pay a dollar less than what they were willing before.

c) Deadweight loss = (2.75-1.75)* 2*1/2 = $1

3. If the government taxes B, it will have least deadweight loss as elasticity of demand for B is least.

Cigarettes as its demand will be inelastic because people become habitual of it and even if its price increases people will still buy it.