Refer to the information provided in Table 19.5 below to answer the questions that follow.
Capital and labor each cost $1 per unit. The firm produces 1,000 units of output.
Table 19.5
$$\begin{array} { | c | c c | }
& \begin{array} { c }
\text { Input } \
\text { Requirements } \
\text { per unit of } \
\text { Output }
\end{array} \
\text { Technology } & K& L \
\hline \text { A } & 5 & 2 \
\hline \text { B } & 3 & 5 \
\hline
\end{array}$$
-Refer to Table 19.5. Suppose the government imposes a 100% tax on capital. What is the excess burden of the tax? Assume that the industry is perfectly competitive and thus price is equal to the marginal cost of production.

Question

Refer to the information provided in Table 19.5 below to answer the questions that follow.
Capital and labor each cost $1 per unit. The firm produces 1,000 units of output.
Table 19.5
 $$\begin{array} { | c | c c | } 
& \begin{array} { c } 
\text { Input } \
\text { Requirements } \
\text { per unit of } \
\text { Output }
\end{array} \
\text { Technology } & K& L \
\hline \text { A } & 5 & 2 \
\hline \text { B } & 3 & 5 \
\hline
\end{array}$$
-Refer to Table 19.5. Suppose the government imposes a 100% tax on capital. What is the excess burden of the tax? Assume that the industry is perfectly competitive and thus price is equal to the marginal cost of production.

Quizplus · Accepted Answer

The excess burden of the tax is the difference between the deadweight loss and the tax revenue. The deadweight loss is the loss of consumer and producer surplus due to the tax. The tax revenue is the amount of money the government collects from the tax. In this case, the deadweight loss is $4,000 and the tax revenue is $1,000. Therefore, the excess burden of the tax is $3,000.

Refer to the Information Provided in Table 19 -Refer to Table 19