Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 20, Problem 11DQ
To determine
The equilibrium of price and quantity, tax revenue, and efficiency loss.
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Suppose the equation for the demand curve for some product X is P = 8 - .6Q and the supply curve is P = 2 + .4Q. What are the equilibrium price and quantity? Now suppose an excise tax is imposed on X such that the new supply equation is P = 4 +.4Q. How much tax revenue will this excise tax yield the government? Graph the curves, and label the area of the graph that represents the tax collection “TC” and the area that represents the effificiency loss of the tax “EL.” Briefly explain why area EL is the effificiency loss of the tax but TC is not.
Suppose the equation for the demand curve for some product X is P = 8 − 0.6Q and the supply curve is P = 2 + 0.4Q. What are the equilibrium price and quantity? Now suppose an excise tax is imposed on X such that the new supply equation is P = 4 + 0.4Q. How much tax revenue will this excise tax yield the government? Graph the curves, and label the area of the graph that represents the tax collection “TC” and the area that represents the efficiency loss of the tax “EL.” Briefly explain why area EL is the efficiency loss of the tax but TC is not.
Attached is a graph diagram depicting the market for soft drinks. If an excise tax equal to $1 per liter is levied on soft drink sellers, please answer the following questions:
1. Buyers would spend a total of $___________ million on soft drinks.
2. Sellers would receive a total of $____________ million (after-tax) from selling soft drinks.
3. The government revenue from this tax would be $____________ million.
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- 5. Calculating tax incidence Suppose that the U.S. government decides to charge cola producers a tax. Before the tax, 30,000 cases of cola were sold every week at a price of $4 per case. After the tax, 25,000 cases of cola are sold every week; consumers pay $6 per case, and producers receive $3 per case (after paying the tax). The amount of the tax on a case of cola is $ per case. Of this amount, the burden that falls on consumers is $ per case, and the burden that falls on producers is $ per case. True or False: The effect of the tax on the quantity sold would have been the same as if the tax had been levied on consumers. True O Falsearrow_forward5. Calculating tax incidence Suppose that the U.S. government decides to charge cola producers a tax. Before the tax, 25 million cases of cola were sold every month at a price of $7 per case. After the tax, 18 million cases of cola are sold every month; consumers pay $8 per case, and producers receive $5 per case (after paying the tax). The amount of the tax on a case of cola is $ per case. Of this amount, the burden that falls on consumers is $ per case, and the burden that falls on producers is $ per case. True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on consumers. O True O Falsearrow_forwardFigure: An Excise Tax Price of good $5.00 4.33 3.50 3.00 2.40 1.40 0.60 0 100 225 300 Reference: Ref 7-4 D 750 Quantity (Figure: An Excise Tax) Look at the figure An Excise Tax. If an excise tax equal to $1.10 is imposed on the supply of this good, then the price received by sellers will: A) decrease by $0.60. B) increase by $0.50. C) not decrease. D) decrease by $1.10.arrow_forward
- Taxation Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (a) Draw a supply-and-demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? (b) Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased? (c) Can you identify any government revenues? (d) Is there any inefficiency, and if so, can you define it and label it on the graph? (e) If the producer has an inelastic supply curve, which market participant has the bigger tax burden? Explain.arrow_forwardTaxation Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (a) Draw a supply-and-demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? (b) Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased?arrow_forwardTaxation Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (a) Draw a supply-and-demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? (b) Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased? (c) If the producer has an inelastic supply curve, which market participant has the bigger tax burden? Explain.arrow_forward
- 5. Draw supply and demand curve and answer the following questions: (a) Suppose the supply of tobacco is elastic and the demand for tobacco is inelas- tic. If an excise tax is levied on the suppliers of tobacco, will the incidence of the tax fall mostly on consumers or mostly on producers? (b) If the demand is relatively more inelastic than before, will the DWL rise or fall? Will tax revenue from the tobacco tax fall or rise? (You must draw the supply and demand curve) Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward5. Calculating tax incidence Suppose that the U.S. government decides to charge cola consumers a tax. Before the tax, 40 billion cases of cola were sold every year at a price of $7 per case. After the tax, 34 billion cases of cola are sold every year; consumers pay $8 per case (induding the tax), and producers receive $4 per case. per case, and the The amount of the tax on a case of cola isS per case. Of this amount, the burden that falls on consumers is S burden that falls on producers is s per case. True or False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on producers. O True O Falsearrow_forward3) Are excise taxes, like those on tobacco, gasoline, and alcohol, Progressive, Proportional, or Regressive? Why do you think they are?arrow_forward
- 1-Consider the three following households: Household A with an income of 12000$ Household B with an income of 15000$ Household C with an income of 30000$ The income tax in the country X is proportional and equals 2% The income tax in the country Y is as follows: The households who are paid under 15000$ would pay a tax of 10% and those above 15000% would pay a tax of 20% The income tax in the country Z is regressive. Households A, B and C would pay 10% or 20% or 30%. Calculate the income tax for the three households in each country.arrow_forwardMacmillan Learning Suppose that a city government introduces a $0.50 excise (commodity) tax on consumers of bottles of soda to improve the health of its citizens. Manipulate the accompanying graph to demonstrate the impact of the tax on the market for soda. What would be the new equilibrium quantity if instead of taxing consumers, the city taxed producers? 5.0 4.5 4.0 3.5 Market for Bottles of Soda thousand bottles Price ($/bottle) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0 1 2 5 6 3 4 Quantity (thousands of bottles) D 7 8 9 10arrow_forward2. Suppose that demand is perfectly elastic and supply is a basic upward sloping curve (so neither perfectly inelastic or elastic). Graphically, show how many tax burden that consumers and producers will get when the government taxes the consumers.arrow_forward
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