Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 2, Problem 7CACQ
To determine
(a)
To find:
The
To determine
(b)
To find:
The new equilibrium price and quantity when excise tax of $12 is imposed.
To determine
(c)
To find:
The tax revenue that the government will earn at imposing $12 as tax.
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The demand and supply equations for a product are:
Qd= 300 — 6P and Qs= -40 + 6P.
Determine the market equilibrium and draw graphs.
Suppose that the government decides to impose a flat tax of 10% on each unit sold. Show that the price that consumers pay would be the same if the government imposed a tax of Rs. 1.70 per unit sold. Draw graphs and explain.
Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producers surplus, and deadweight loss
The demand and supply equations for a product are:
Qd = 300 - 6P and Qs = -40 + 6P.
Determine the market equilibrium and draw graphs.
Suppose that the government decides to impose a flat tax of 10% on each unit sold. Show that the price that consumer pay would be the same if the government imposed a tax of Rs. 1.70 per unit sold. Draw graphs and explain.
Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producers surplus and dead weight loss.
7. Suppose demand and supply are given by: (LO3, L04)
Q = 14 - P₁ and Q = P₁ - 1
Р X
a. Determine the equilibrium price and quantity. Show the equilibrium graphically.
b. Suppose a $12 excise tax is imposed on the good. Determine the new equilibrium
price and quantity.
How much tax revenue does the government earn with the $12 tax?
Chapter 2 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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- The demand and supply equations for a product are: Q"= 300 – 6P and Q' = -40 + 6P. Determine the market equilibrium and draw graphs. Suppose that the government decides to impose a flat tax of 10% on each unit sold. Show that the price that consumers pay would be the same if the government imposed a tax of Rs. 1.70 per unit sold. Draw graphs and explain. • Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producers surplus and dead weight loss.arrow_forwardSuppose the supply of a good is given by the equation QS=600P−1,200 , and the demand for the good is given by the equation QD=1,600−200P , where quantity (Q) is measured in millions of units and price (P) is measured in dollars per unit. The government decides to levy an excise tax of $2.00 per unit on the good, to be paid by the seller. Calculate the value of each of the following, before the tax and after the tax, to complete the table that follows: 1. The equilibrium quantity produced 2. The equilibrium price consumers pay for the good 3. The price received by sellers Before Tax After Tax Equilibrium Quantity (Millions of units) Equilibrium Price per Unit Paid by Consumers Price per Unit Received by Sellers Given the information you calculated in the preceding table, the tax incidence on consumers is per unit of the good, and the tax incidence on producers is per unit of the good. The government receives in tax revenue from levying an excise tax of $2.00 per unit on this good. True…arrow_forwardThis year, the price-demand and price-supply equations for bourbon whiskey are, respectively: p = 850 - 0.25Q (price-demand) p = 200 + 0.15Q (price-supply) Quantities Qd and Q are measured in million of cases, and the pricep is for one case. The government has just announced that, effective immediately, it will impose an excise tax of $20 per case on all distilled spirits, including bourbon whiskey. Question: How would the tax excise change the revenues from selling bourbon whiskey? Hint: Calculate the revenues before the tax is implemented and the revenues after the tax is implemented. Revenues drop by $1.5 billion Revenues drop by $3.125 billion Revenues increase by $4.29 billion Revenues drop by $2.5 billion Revenues increase by $1.5 billionarrow_forward
- The government of a State has been experiencing an increase in number of obesity cases. Research suggests an increase in consumption of a particular fast food item is responsible for high number of obesity cases. As a result, the government of that State is considering an imposition of $1 tax. Monthly demand and supply for this good are QD=21-1P and QS= -1+1P respectively. Draw the demand and Supply curve for fast food before the tax is imposed. Calculate the equilibrium price and quantity, consumer and producer surplus, and label them on the graph. Calculate the price elasticity of demand and supply for fast food. If the State government imposes a tax, who will bear the most of the burden of the tax? Suppose that the State government finally imposes a $1 tax on fast food. What will the new equilibrium price and quantity? Include the tax on your graph. Calculate the consumer and producer surplus and label them on the graph. Is there any deadweight loss resulting from the tax on that…arrow_forwardIn the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. Removing the excise tax on product X willarrow_forwardQUESTION 1 Microplastics have been discovered in clouds, where scientists say they could be contributing towards climate change. As such the government would like to reduce environmental pollution in South Africa. They have agreed to charge all producers of plastic bags a unit tax (that is the seller has a statutory burden). After the imposition of such a unit tax, supply curve (S) shifted from Sx to S, as shown in the below figure. Which area represents the total tax paid by the consumer using below figure? Figure 1 A. B. C. D. abgf abdc cdgf abec P Pya P₂ P. D Ga * Oarrow_forward
- The inverse demand function is p = 10q, where q is the number of units sold. The inverse supply function is defined by p = 2 + q. A tax of $2 is imposed on suppliers for each unit that they sell. After the tax is imposed, the equilibrium quantity with taxes is. 0 1 07 O 3 04 09arrow_forwardSuppose demand and supply are given by: (LO3, LO4) Qx d = 14 − 1/2 Px and Qx s = 1/4Px − 1 a. Determine the equilibrium price and quantity. Show the equilibrium graphically. B. Supposed a $ 12 excise tax is imposed on the good. Determine the new equilibrium price and quantity C. How much tax revenue does the government earn with the $12 taxarrow_forwardThe Health Ministry is evaluating the data of the soft beverages market. Demand function: QD=270−4P Supply function: QS=−70+4P Submit answers in two decimal places if you get answers in decimals/fractions (a) Find the Total Surplus. The authority is concerned about the increasing obesity rate in the country. Hence, they have decided to impose a tax of TK 5 per unit on soft drinks. Submit answers in two decimal places if you get answers in decimals/fractions (b) What is the total of new consumer surplus and producer surplus after government intervention?arrow_forward
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