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Below is a graph of the market for gram of legal recreational cannabis in MA. What is the equilibrium price and the equilibrium quantity sold in this market? Write the values here and label them on the graph as P* and Q* Gram) 19.00 17.00 15.00 Supply

Below is a graph of the market for gram of legal recreational cannabis in MA. What is the equilibrium price and the equilibrium quantity sold in this market? Write the values here and label them on the graph as P* and Q* Gram) 19.00 17.00 15.00 Supply

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter5: Elasticity
Section: Chapter Questions
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1. Below is a graph of the market for gram of legal recreational cannabis in MA. What is the equilibrium price and the equilibrium quantity sold in this market? Write the values here and label them on the graph as P* and Q* Price of Recreational Cannabis ($/Gram) 19.00 17.00 15.00 13.00 11.00 9.00 7.00 5.00 3.00 1.00 0 8 1 2 3 4 5 6 7 Quantity of Recreational Cannabis (10,000s of grams) Supply Demand 9 10 2. In MA, a city or town may impose an additional tax on cannabis sales in its locality. If we assume the tax payments are collected directly from the cannabis retailers, we typically model this as an increase in the cost of production to suppliers, which would be a shift in the supply curve. Draw a new supply curve in the graph above that exactly reflects a $2 tax on each gram sold. Be sure to label the height of the vertical distance between the old and new supply curves 3. With the new supply curve, if the price of cannabis remained at the old equilibrium price (from question 1), would there be a shortage or surplus of cannabis? 4. Describe the competitive market forces that would move the market from the old equilibrium price and quantity (from question 1) to the new equilibrium price and quantity (from question 2 with the new supply curve). Label the new equilibrium price and quantity. 5. Is the new equilibrium price greater or less than the total of the old equilibrium price plus the tax? 6. So, are the producers able to pass the entire amount of the tax onto the consumers through the price increase? Yes or no
Transcribed Image Text:1. Below is a graph of the market for gram of legal recreational cannabis in MA. What is the equilibrium price and the equilibrium quantity sold in this market? Write the values here and label them on the graph as P* and Q* Price of Recreational Cannabis ($/Gram) 19.00 17.00 15.00 13.00 11.00 9.00 7.00 5.00 3.00 1.00 0 8 1 2 3 4 5 6 7 Quantity of Recreational Cannabis (10,000s of grams) Supply Demand 9 10 2. In MA, a city or town may impose an additional tax on cannabis sales in its locality. If we assume the tax payments are collected directly from the cannabis retailers, we typically model this as an increase in the cost of production to suppliers, which would be a shift in the supply curve. Draw a new supply curve in the graph above that exactly reflects a $2 tax on each gram sold. Be sure to label the height of the vertical distance between the old and new supply curves 3. With the new supply curve, if the price of cannabis remained at the old equilibrium price (from question 1), would there be a shortage or surplus of cannabis? 4. Describe the competitive market forces that would move the market from the old equilibrium price and quantity (from question 1) to the new equilibrium price and quantity (from question 2 with the new supply curve). Label the new equilibrium price and quantity. 5. Is the new equilibrium price greater or less than the total of the old equilibrium price plus the tax? 6. So, are the producers able to pass the entire amount of the tax onto the consumers through the price increase? Yes or no
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