In the Village of Punjab, Sheryl Owns a Well, Which

question 390

Essay

In the Village of Punjab, Sheryl owns a well, which is the only source of drinking water. The supply of water is perfectly inelastic at a quantity of 1,000 gallons of water per day. At a price of $2.00 per gallon, the quantity demanded per day is 1,000 gallons. The government imposes a $0.50 per gallon tax.
a) After the tax is imposed, what is the price paid by the villagers? What is the price received by Sheryl?
b) How much revenue does the government collect?
c) What fraction of the tax does Sheryl pay? What fraction is paid by the villagers?

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