Chapter 50, Problem 2CYU

To determine

Consumers’ price, producers’ price, quantity after tax, and the allocation of tax between consumers and producers.

Explanation of Solution

  

From the diagram, after tax, the price that consumers will pay would be$1.20 per pound and the price that producers will receive post-tax would be $0.90 per pound.

The quantity of butter that would be transacted is 9 million pounds.

And, the tax is allocated between consumers and producers where consumers will pay $0.20 of the tax and producers will pay $0.10.

Economics Concept Introduction

Introduction: A tax that is levied on sale of certain goods by the government is called excise tax.