Question

Incidence of an excise tax or who bears the burden of the tax. The table shows the demand and supply        schedules for cases of beer (in thousands).

                       Quantity              Price                       Before-tax                              After-tax

                       demanded            per case($)             quantity supplied                   quantity supplied

                          300                    11.40                              900                                 __________

                          350                    11.20                              800                                 __________

                          400                    11.00                              700                    c.             _______

                          450                    10.80                              600                    b.             _______

                          500                    10.60                              500                    a.             _______

                          550                    10.40                              400                                        *

                          600                    10.20                              300                                        *

                          650                    10.00                              200                                        *

            

             If the government imposes a $0.60 excise tax per case of beer, what is the after-tax supply             schedule? To answer a, b, and c you must draw a graph of the two supply curves (chapter 3).

             d.          The before-tax equilibrium P is $________ and the equilibrium Q is ________ (ch. 3)

             e.          The after-tax equilibrium P is $________ and the equilibrium Q is _________ (ch. 3).

             f.           The excise tax per case of beer the seller actually pays the government is $______ (ch. 3).

             g.          Of the $0.60 excise tax, the amount borne by the buyer is $__________ or __________%.

             h.          Of the $0.60 excise tax, the amount borne by the seller is $__________ or __________%.

             i.           The total tax revenue collected by the government is $_______,000.

Please give a clear and concise answer and how h exactly they are obtained.

Answer 1

Qd	P	Qs	After tax Qs
300	11.4	900	600
350	11.2	800	500
400	11	700	400
450	10.8	600	300
500	10.6	500	200
550	10.4	400
600	10.2	300
650	10	200

New supply curve would move up vertically (difference in new and old prices at the same quantity = $ 0.6)

d) Before tax equilibrium: P = $ 10.6 and Q = 500 thousand (where demand = old supply)

e) After tax equilibrium: P = $ 11 and Q = 400 thousand (where demand = old supply)

f) Excise tax paid by seller = 0.6 - (11 - 10.6) = $ 0.2

g) Amount borne by the buyer = 11 - 10.6 = $ 0.4 or 66.67% ( = 0.4/0.6 x 100)

h) Amount borne by the buyer = 0.6 - 0.4 = $ 0.2 or 33.33% ( = 0.2/0.6 x 100)

i) Tax revenue = Q(equilibrium) x Tax = 0.6 x 400000 = $ 240000