Q1. In 2009, it was proposed that the state of Nevada create an entertainment tax that "would require the state's 25 legal brothels to give the state some money on a per-transaction basis" [Friess, 2009]. Discuss the likely incidence of such a tax. Use an appropriate diagram as the basis for your discussion.
Q2. The owner of an Italian restaurant has just been notified by her landlord that the monthly lease on the building in which the restaurant operates will increase by 20 percent at the beginning of the year. Her current prices are competitive with nearby restaurants of similar quality. However, she is now considering raising her prices by 20 percent to offset the increase in her monthly rent. Would you recommend that she raise prices? Explain.