Answered: 1. Corn is an essential commodity in a… | bartleby

International Financial Management

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter18: Long-term Debt Financing

Section: Chapter Questions

Problem 5ST

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Corn is an essential commodity in a small Central American country and the government intends to impose a tax on
rich consumers in order to subsidize the consumption by the poor. The demands of these two groups are defined
by P = 105 - qr and P = 50 - qp, respectively. The supply curve is infinitely elastic at P = 20.
a.
If the government wants to give a subsidy S = 10 for each unit sold to the poor, how much would the
government have to spend?
100
400
300
600
None of the options

b.
What unit tax would the government have to impose on rich consumers in order to
balance the budget?
10
5
3
6
None of the options

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