Question

3) Suppose a $4/unit tax is placed on a good. If the original equilibrium is (P...

3) Suppose a $4/unit tax is placed on a good. If the original equilibrium is (P = $20, Q = 1000) and the new equilibrium is (P = $21, Q = 800), what is the consumer tax burden?

Group of answer choices

a $2400

b $1000

c $3200

d $800

4)

Suppose the demand curve for cigarettes is extremely inelastic (relatively steep). If the government decides to increase its revenue by taxing cigarette sales, will consumers or producers pay a larger proportion of the tax? Will an inelastic demand curve create more or less deadweight loss than an elastic one, all else equal?

Group of answer choices

a Consumers bear larger tax burden, inelastic demand curve will have more deadweight loss

b Producers bear larger tax burden, inelastic demand curve will have more deadweight loss

c Producers bear larger tax burden, inelastic demand curve will have less deadweight loss

d Consumers bear larger tax burden, inelastic demand curve will have less deadweight loss

Homework Answers

Answer #1

3. Before tax price paid by buyers = $ 20 per unit

After tax price paid = $ 21 per unit

Tax incidence on buyer = $ 21 - 20 = $ 1 per unit

Tax burden on buyers = $ 1 × 800 = $ 800

4. As it isme too ed that demand curve is inelastic therefore, buyers will bear a larger burden of tax in comparison to sellers.

The deadweight loss in this case would be smaller. As the demand curve is inelastic. In case of inelastic demand due to tax imposed by government the impact on quantity demanded would be small.

d.  Consumers bear larger tax burden, inelastic demand curve will have less deadweight loss.

Please contact if having any query will be obliged to you for your generous support. Your help mean a lot to me, please help. Thank you.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
7) Suppose a $2/unit tax is placed on a good. If the original equilibrium is (P...
7) Suppose a $2/unit tax is placed on a good. If the original equilibrium is (P = $13, Q = 500) and the new equilibrium is (P = $14.50, Q = 300), what is the producer tax burden? Group of answer choices a $1000 b $150 c $450 d $600 8) Which of the following is consistent with a demand curve that shows a larger percent change in price than its percent change in quantity? Group of answer choices a...
Which of the following sentences about tax incidence is true? I. If demand is relatively elastic,...
Which of the following sentences about tax incidence is true? I. If demand is relatively elastic, producers will bear a greater burden of the tax than consumers. II. If supply is completely inelastic, producers will bear all the burden of the tax. III. If the supply curve is completely elastic, consumers will bear none of the burden of the tax. Group of answer choices II and III only. III only I, II and III. II only. I and II only.
The demand for skateboards in Vermillion is Q = 500−2P and the supply curve is Q...
The demand for skateboards in Vermillion is Q = 500−2P and the supply curve is Q = 1/2 P. The government 2 decides to raise revenue by taxing consumers $25 for each skateboard purchased. (a) Graph the supply and demand curves and calculate the consumer and producer surplus that would exist if there were no tax in the market. (b) Show how the tax will change the market equilibrium price and quantity. Identify the price paid by consumers and the...
4A The price elasticity along a negatively sloped linear demand curve 1 changes at every point...
4A The price elasticity along a negatively sloped linear demand curve 1 changes at every point 2 is less than 1 3IS INFINITE 4 is equal to 1 5 is zero 28A If demand curve is more elastic relative to supply sellers pay a larger portion of the excise tax. B. consumer price increases by the amount of the tax. C. entire burden of the tax is borne by the sellers. D. sellers pay a smaller portion of the excise...
1). The market demand function for a good is given by Q = D(p) = 800...
1). The market demand function for a good is given by Q = D(p) = 800 − 50p. For each firm that produces the good the total cost function is TC(Q) = 4Q+( Q2/2) . Recall that this means that the marginal cost is MC(Q) = 4 + Q. Assume that firms are price takers. (a) What is the efficient scale of production and the minimum of average cost for each firm? Hint: Graph the average cost curve first. (b)...
- The impact of tax on markets and welfare distribution. - Use supply and demand diagrams...
- The impact of tax on markets and welfare distribution. - Use supply and demand diagrams to answer the following questions. Draw new diagrams for answers to each part. a- Show that regardless of who the tax is levied on (consumers or producers), a tax increase the price paid by consumers, decrease the price received by producers, and make the market smaller compared with a free market. Notes: You should use two diagrams, one for tax on consumers and one...
Suppose that the demand equation: P = 6 – Q and supply equation: P = Q....
Suppose that the demand equation: P = 6 – Q and supply equation: P = Q. a. Calculate the price elasticity of demand at equilibrium. b. Calculate the equilibrium price and quantity, and consumer surplus and producer surplus. c. Suppose government imposes a unit tax of $1 on producers. Derive the new supply curve and also calculate the new equilibrium price and quantity. d. Calculate tax revenue and the deadweight loss of this tax.
Suppose the average monthly demand for cigarettes can be described by the equation QD = 30−p,...
Suppose the average monthly demand for cigarettes can be described by the equation QD = 30−p, and supply can be described by the equation QS = 18+2p, where p is the price of a pack of cigarettes. When there is no tax on cigarettes, the equilibrium price is p0 =$4 per pack and Q0 =26. (a) Suppose the government sets a specific tax on tobacco producers of τ = $1.50 per pack to reduce tobacco consumption. How much do consumers...
Suppose that, in the market for soda drinks, demand is given by P= 48 – 0.6Q,...
Suppose that, in the market for soda drinks, demand is given by P= 48 – 0.6Q, and supply is given by P= 0.2Q. Further, suppose that the government decides to impose a $4 per soda drink. A. On a graph, demonstrate the effect of the tax on the equilibrium price and quantity. (Clearly label the value of each both before and after the tax.) B. Show on the graph and calculate the tax revenue and deadweight loss that result from...
Suppose the demand curve for a good is Q =9 −pand the supply curve is Q...
Suppose the demand curve for a good is Q =9 −pand the supply curve is Q =2p. The government imposes a specific tax of =1 per unit. What would be the equilibrium? What effect does the tax have on consumer surplus, producer surplus and deadweight loss?