Beatriz enjoys writing and uses a large amount of paper. The formula for her demand curve is S = 52500 - 5000PS, where PS is the price of and S is the number of sheets purchased. Currently, paper costs 2 cents per sheet. The governor of her state proposed taxing paper at the rate of $0.50 for each 100 sheets. Suppose that this policy would increase the price of paper to 2.5 cents per sheet (including tax).
1. Illustrate the Beatriz' demand curve. Using the method described in Section 6.2, calculate the change in her consumer surplus for the proposed tax increase.
2. Discuss how much revenue will the government raise by taxing Beatriz? Discuss how does that revenue compare to her economic losses? Does the new tax raise enough revenue for the government to compensate her for her loss?