PROBLEM 1:

𝟏
The market for sandals has price elasticity of demand as - 6 , and of supply as
𝟑
𝟏
1 . Sandal price is measured at VND thousand per pair, and its purchased
𝟖
quantity at thousands of pair. (Assuming the elasticity is constant along the
demand and supply curves).
When a unit tax of VND 7,000/pair is levied on the sandal producers, a market
research institute has an estimate that purchased quantity of sandals has been
𝟐
reduced by 16 percent from the current quantity of 1.2 million pairs.
𝟑

Summary of conditions:
∆𝑄 𝑃 1 19
𝐸𝑃𝐷 = 𝑄 .∆𝑃0 = - 6 3 = - (1)
0 𝑐 3
∆𝑄 𝑃 1 19
𝐸𝑃𝑆 = 𝑄 .∆𝑃0 = 1 18 = (2)
0 𝑝 18
∆𝑄 2 50 1
= 16 3% = = (3)
𝑄0 300 6
T = Pc – Pp = 7 ➔ (P0 – Pp) - (P0 – Pc) = ∆Pp + ∆Pc = 7 (4)
Q0 = 1200 (5)
 𝑃0 19 1 1
Replace (3) in (1): =- : ( ) = -38 or ∆Pc = P0 *(- ) (6)
∆𝑃𝑐 3 6 38
𝑃0 19 1 19 3
Replace (3) in (2): = : / = or ∆Pp = P0 * ( ) (7)
∆𝑃𝑝 18 6 3 19
Replace (6) and (7) in (4):
3 1 7
7 = ∆Pp - ∆Pc = P0 * ( + ) = P0 * or P0 = 38 (thousand VND)
19 38 38
1
From (6) we have, ∆Pc = P0 *(- ) or ∆Pc = P0 – Pc = (-1) or Pc = 38 + 1 = 39
38
From (4) we have, Pp = Pc – t = 39 – 7 = 32 (thousand VND)
1
a, Q1 = Q0 * (1- 6) = 1,200 * 5/6 or Q1 = 1,000 (thousand pairs), ∆Q = 200
Pre-tax gross sale = GR0 = P0 * Q0 = 38 * 1,200 = 46.6 (billion dong)
After-tax gross sale = GR1 = Pc * Q1 = 39*1,000 = 39 (billion dong)
After-tax net sale = NR1 = Pp * Q1 = 32*1,000 = 32 (billion VND)
b, Consumers’ tax burden = Tc = (-∆Pc) * Q1 = 1 (billion VND)
Producers’ tax burden = Tp = ∆Pp * Q1 = 6*1,000 = 6 (billion VND)
Total tax burden = T = t * Q1 = 7 * 1,000 = Tc + Tp = 7 (billion VND)
c, Consumers’ tax-induced deadweight loss =
1 1
∆Wc = (-∆Pc) * ∆Q = * 1 * 200 = 100 (mil VND) = 0.1 billion VND
2 2
Producers’ tax-induced deadweight loss =
1 1
∆WS = ∆PS * ∆Q = * 6 * 200 = 600 (mil VND) = 0.6 billion VND
2 2
Total tax induced deadweight loss = ∆W = ∆Wc + ∆WS = 0.1+0.6=0,7 (bil. VND)

PROBLEM 2:
Shoe market is perfectly competitive with price elasticity of demand ɛD as - 0.8
and of supply ɛS as 1.2 (assuming that the elasticity is constant along the
demand or supply curve). Pre-tax equilibrium of quantity is 400,000 pairs of
shoes sold at the market price of USD 10 per pair. After an unit tax is levied
on shoe seller, the consumed quantity falls to 300,000 pairs.

We have:
%Q Q/Qo
- ED= = = - 0.8 (1)
%Pc Pc/Po
%Q Q/Q0
- ES = = = 1.6 (2)
%Pp Pp/P0
- P0 = $10/pair
- Q0 = 400,000 (pairs)
 - Q1 = 300,000 (pairs)
S’
Dollar
S

B
PC
P0 A
G
PP
C

D
0
Q1 Q0 pairs
Since Q = Q0 – Q1 ➔ Q = 400,000 - 300,000 = 100,000
%∆Q = ∆Q/Q0 = 100,000 / 400,000 = 0.25 (3)
Replace (3) in (1):
%Q 0.25
%∆Pc = Pc/Po = = = - 0.3125 or Pc= - 0.3125*P0= -3.125
𝜀𝐷 − 0.8
Or 10 – Pc = - 3.125 or Pc = 10 + 3.125 = 13.125 $
Replace (3) in (2):
%Q 0.25
%∆Pp = Pp/Po = = = or Pp = 0.15625 * P0 = 1.5625
𝜀𝑆 1.6
Or 10 – Pb = 1.5625 or Pb = 10 - 1.5625 = 8.4375 $
a. What is the sellers’ pre-tax gross revenue?
Pre-tax gross revenue = P0 x Q0 = $10 x 400,000 = $4,000,000 = 4 million $
b. What is after-tax price paid by the buyers, received by the sellers and tax
rate imposed?
 Pc = P0 - Pc = 10 – (-3.125) = $13.125
Pp = P0 - Pp = 10 - 2.083 = $8.4375
Tax rate imposed:
t = Pc - Pp = $13.125 – $8.4375 = $4.6875/pair
c. What is tax burden born in the buyers, the sellers, and total tax revenue
paid to the government?
- Tax burden paid by the buyers (consumers): P0PcBG
TC = (− Pc)* Q1 = 3.125 * 300,000 = $937,500
- Tax burden paid by the sellers (producers): P0PpCG
Tp = Ps * Q1 = $1.5625 * 300,000 = $468,750
- Total tax revenue:
T = Tc + Tp = $937,500 + $468,750 = $1,406,250
d. What is after-tax gross and net-from-tax revenue enjoyed by the sellers?
- After-tax gross revenue = Q1Pc = 300,000 x $13.125 = $3,937,500
- Net – from – tax revenue = Q1Pp = 300,000 x $8.4375 = $2,621,250
e. What is deadweight loss suffered by the buyers, the sellers and the society?
- Deadweight loss suffered by the buyers (consumers): ABG
1
Wc = x (– Pc) x Q
2
1
= x 3.125 x 100,000 = $156,250
2
- Deadweight loss suffered by the sellers (producers): ACG
1
Wp = x Pp x Q
2
1
= x 1.5625 x 100,000 = $78,125
2
- Deadweight loss suffered by the society:
W = Wc + Wp = $156,250 + $78,125 = $234,375

PROBLEM 3:
According the current Law on personal income tax, the first USD 5,000 in an
individual’s income will be tax-exempted. For the income level above USD 5,000
to USD 10,000, a tax rate of 10%; from above USD 10,000 to USD 15,000 a tax
rate of 20%; and from above USD 15,000, the tax rate of 30% are applied
respectively. How much tax a person with income of USD 35 million must pay?
 - Income: Y = $35 million
- Exemption = $5000
- Tax rate:
+ 0 - $5000: 0%
+ $5000 - $10,000: 10%
+ $10,000 - $15,000: 20%
+ Above $15,000: 30%

Taxable income: Yt = Y – Exemption = $35,000,000 - $5000 = $34,995,000