1. Consider two projects. The first project pays benefits of $90 today and nothing else. The second project pays nothing today, nothing one year from now, but $100 two years from now. Which project would be preferred if the discount rate were 0%? What if the rate increased to 10%?
2. Suppose that the original before-tax demand curve is P = 98-2Qd and that supply is P = 2+2Qs. Now suppose a $3 unit tax is imposed on consumers.
a. Use supply and demand diagrams to show the effect of a $3-unit tax imposed on the demand side.
b. What is the before-tax equilibrium price and quantity?
c. What is the after-tax equilibrium quantity?
d. Calculate the economic incidence incurred by producers and the economic incidence incurred by consumers.
e. How much tax revenue is raised?