1. Below is a graph of the market for gram of legal recreational cannabis in MA. What is the equilibrium price and the equilibrium quantity sold in this market? Write the values here and label them on the graph as P* and Q* Price of Recreational Cannabis ($/Gram) 19.00 17.00 15.00 13.00 11.00 9.00 7.00 5.00 3.00 1.00 0 12 345 6 7 8 Quantity of Recreational Cannabis (10,000s of grams) Supply Demand 9 10 2. In MA, a city or town may impose an additional tax on cannabis sales in its locality. If we assume the tax payments are collected directly from the cannabis retailers, we typically model this as an increase in the cost of production to suppliers, which would be a shift in the supply curve. Draw a new supply curve in the graph above that exactly reflects a $2 tax on each gram sold. Be sure to label the height of the vertical distance between the old and new supply curves 3. With the new supply curve, if the price of cannabis remained at the old equilibrium price (from question 1), would there be a shortage or surplus of cannabis? 4. Describe the competitive market forces that would move the market from the old equilibrium price and quantity (from question 1) to the new equilibrium price and quantity (from question 2 with the new supply curve). Label the new equilibrium price and quantity. 5. Is the new equilibrium price greater or less than the total of the old equilibrium price plus the tax?
1. Below is a graph of the market for gram of legal recreational cannabis in MA. What is the equilibrium price and the equilibrium quantity sold in this market? Write the values here and label them on the graph as P* and Q* Price of Recreational Cannabis ($/Gram) 19.00 17.00 15.00 13.00 11.00 9.00 7.00 5.00 3.00 1.00 0 12 345 6 7 8 Quantity of Recreational Cannabis (10,000s of grams) Supply Demand 9 10 2. In MA, a city or town may impose an additional tax on cannabis sales in its locality. If we assume the tax payments are collected directly from the cannabis retailers, we typically model this as an increase in the cost of production to suppliers, which would be a shift in the supply curve. Draw a new supply curve in the graph above that exactly reflects a $2 tax on each gram sold. Be sure to label the height of the vertical distance between the old and new supply curves 3. With the new supply curve, if the price of cannabis remained at the old equilibrium price (from question 1), would there be a shortage or surplus of cannabis? 4. Describe the competitive market forces that would move the market from the old equilibrium price and quantity (from question 1) to the new equilibrium price and quantity (from question 2 with the new supply curve). Label the new equilibrium price and quantity. 5. Is the new equilibrium price greater or less than the total of the old equilibrium price plus the tax?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Below is a graph of the market for gram of legal recreational cannabis in MA. What is the equilibrium
price and the equilibrium quantity sold in this market? Write the values here and label them on the
graph as P* and Q*
Price of Recreational Cannabis ($/Gram)
19.00
17.00
15.00
13.00
11.00
9.00
7.00
5.00
3.00
1.00
0
1 2
3 4 5 6
Quantity of Recreational Cannabis (10,000s of grams)
7
Supply
Demand
8 9
10
2. In MA, a city or town may impose an additional tax on cannabis sales in its locality. If we assume the
tax payments are collected directly from the cannabis retailers, we typically model this as an increase
in the cost of production to suppliers, which would be a shift in the supply curve. Draw a new
supply curve in the graph above that exactly reflects a $2 tax on each gram sold. Be sure to label the
height of the vertical distance between the old and new supply curves
3. With the new supply curve, if the price of cannabis remained at the old equilibrium price (from
question 1), would there be a shortage or surplus of cannabis?
4. Describe the competitive market forces that would move the market from the old equilibrium price
and quantity (from question 1) to the new equilibrium price and quantity (from question 2 with the
new supply curve). Label the new equilibrium price and quantity.
5. Is the new equilibrium price greater or less than the total of the old equilibrium price plus the tax?
6. So, are the producers able to pass the entire amount of the tax onto the consumers through the price
increase? Yes or no
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