Q^d= 9.5 - 2p Q^s= 0.6p Tax. Suppose that the government imposes a tax equal to T = 0.50 which buyers must pay for every donut they purchase. (a) How does this tax change the supply and/or demand curve for donuts? (b) Solve for the new equilibrium price and quantity of donuts. Give the price paid by the buyer and the price received by the seller. (c) Draw a single supply and demand diagram that compares the equilibrium with and without the tax. Be sure to indicate the equilibrium quantity of donuts sold as well as the price paid by buyers and the price received by sellers in each case. On the same diagram, indicate the areas which represent consumer and producer surplus, tax revenue and the deadweight loss arising from this tax. (d) Calculate the amount of producer and consumer surplus at this new equilibrium price and quantity, as well as the amount of tax revenue and the deadweight loss. (e) Is the total surplus higher, lower, or the same as in question one? Give an economic explanation for why the total surplus has or has not changed. (f) Comparing your answer to that in question one, would you say that the burden of this tax has fallen more on the buyers or on the sellers of donuts? Explain your answer.
Q^d= 9.5 - 2p Q^s= 0.6p Tax. Suppose that the government imposes a tax equal to T = 0.50 which buyers must pay for every donut they purchase. (a) How does this tax change the supply and/or demand curve for donuts? (b) Solve for the new equilibrium price and quantity of donuts. Give the price paid by the buyer and the price received by the seller. (c) Draw a single supply and demand diagram that compares the equilibrium with and without the tax. Be sure to indicate the equilibrium quantity of donuts sold as well as the price paid by buyers and the price received by sellers in each case. On the same diagram, indicate the areas which represent consumer and producer surplus, tax revenue and the deadweight loss arising from this tax. (d) Calculate the amount of producer and consumer surplus at this new equilibrium price and quantity, as well as the amount of tax revenue and the deadweight loss. (e) Is the total surplus higher, lower, or the same as in question one? Give an economic explanation for why the total surplus has or has not changed. (f) Comparing your answer to that in question one, would you say that the burden of this tax has fallen more on the buyers or on the sellers of donuts? Explain your answer.
Chapter6: Elasticity
Section: Chapter Questions
Problem 11QP: Suppose you learned that the price elasticity of demand for wheat is 0.7 between the current price...
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Q^d= 9.5 - 2p
Q^s= 0.6p
Tax. Suppose that the government imposes a tax equal to T = 0.50 which buyers must pay for every donut they purchase.
(a) How does this tax change the supply and/or demand curve for donuts?
(b) Solve for the new equilibrium price and quantity of donuts. Give the price paid by the buyer and the price received by the seller.
(c) Draw a single supply and demand diagram that compares the equilibrium with and without the tax. Be sure to indicate the equilibrium quantity of donuts sold as well as the price paid by buyers and the price received by sellers in each case. On the same diagram, indicate the areas which represent consumer and producer surplus , tax revenue and the deadweight loss arising from this tax.
(d) Calculate the amount of producer and consumer surplus at this new equilibrium price and quantity, as well as the amount of tax revenue and the deadweight loss.
(e) Is the total surplus higher, lower, or the same as in question one? Give an economic explanation for why the total surplus has or has not changed.
(f) Comparing your answer to that in question one, would you say that the burden of this tax has fallen more on the buyers or on the sellers of donuts? Explain your answer.
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