Production Sectors Consumers
Markets | X Y W | CONS
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PX | 100 -100 |
PY | 100 -100 |
PW | 200 | -200
PL | -40 -60 | 100
PK | -60 -40 | 100
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Activity Z is unprofitable at initial equilibrium prices. It is therefore not operated, and we cannot infer its technical properties from the benchmark social accounting data. In situations like this, we must use other information such as engineering cost estimates to specify the unobserved technology. Here, we will assume that Z is very similar to sector X but roughly 10% less efficient. Can you guess how this will affect the excess burden of a tax on sector X?