Question

Suppose the demand for a product is given by P = 60 –2Q. Also, the supply is given by P = 10 + 3Q. If a $10 per-unit excise tax is levied on the buyers of a good, after the tax, the total amount of tax paid by the consumers is

Answer 1

Answer
before tax equilibrium at Qd=Qs
60-2Q=10+3Q
5Q=50
Q=10
P=60-2*10=40

deducting the tax from the demand curve
P=60-2Q-10=50-2Q
after-tax equilibrium is at after-tax demand equal supply
50-2Q=10+3Q
5Q=40
Q=8
The price paid by the buyer is
P=60-2*8=44
price received by a producer is
P=10+3*8=34
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per unit tax paid by consumer =after tax price consumer paid -before tax price=44-40=4
the total amount of the consumer paid =Q*per unit tax paid by a consumer
=8*4
=$32
the total amount of tax paid by the consumers is $32

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