Q1) Assume M=30, P1=2, P2=3.
a) Government wants to impose quantity (ie. Per unit) tax of $0.25 on good 1. Illustrate the effect of imposing this tax in a clearly labeled graph containing before and after budget lines.
b) Assume instead that government wants to impose value tax of $0.25 on each dollar of the consumer's expenditure on good 1. Illustrate the effect of imposing this tax in graph containing before and after budget lines.
c) Can we say which of these is better for a rational consumer? Describe.