The local government is considering imposing a revenue-neutral

| November 24, 2016

The local government is considering imposing a revenue-neutral (tax revenue would be the same in eithercase) 6.25% tax on either tanning beds or soft drinks. Tanning has an elasticity of demand = ϵd = −0.9,while soft drinks’ ϵd = −0.7. Assume the supply curves have the same elasticity; from an economist’s perspective, which good should be taxed and why?

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