Exploring Macroeconomics
8th Edition
ISBN: 9781544337722
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 7, Problem 9P
To determine
(a)
The area of
To determine
(b)
The area of consumer surplus and producer surplus if the $T tax is imposed.
To determine
(c)
The deadweight cost of the tax.
To determine
(d)
The tax revenue which is raised from the tax.
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The graph accompanying this question shows a market in which the government has imposed an excise tax of $60 on producers.
(a) What quantity will be sold in the market?
(b) What price will consumers pay in the market?
(c) By how much will consumer surplus change as a result of the tax?
(d) By how much will the producer surplus change as a result of the tax?
(e) How much revenue will the government collect from this excise tax?
(1) Calculate the deadweight loss created by the tax.
Price
$120
$90
$30
0
1,000
2.000
3,000
Quantity
Please written by computer source Suppose that the demand curve for a product is given by Q = 100 −10p and the supply curve is Q = 10p. Assume that income effects (elasticities) are small so consumer surplus is a good measure of consumer welfare.
(a) What is the equilibrium price and quantity with no distortions? (b) The government imposes a tax of $2.00 per unit sold. What is the new equilibrium quantity? Sketch the market equilibrium in a graph. (c) Given the tax what is the change in consumer surplus? What is the change in producer surplus? What is the change in government revenue? What is the net Dead Weight Loss from the tax? (d) Say the government proposes to use the revenue from the tax to pay for snacks in our last ECON 312A lecture. The total social benefits from the snacks would be $82.00. Will the tax increase overall welfare if the revenue is used to buy the snacks? What is the dollar value of the net gain or loss to society?
A) At the equilibrium price before the tax is imposed, what area represents consumer surplus? What area represents produce surplus? B) Say that a tax of $T per unit is imposed in the industry. What area now represents consumer surplus? What area represents producer surplus? C) What area represents the deadweight cost of the tax? D) What area represents how much tax revenue is raised by the tax?
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