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Suppose that the government imposes a per-unit tax on cell phones. The tax is imposed on producers of cell phones and the amount of the tax is $50 per cell phone. The following graph shows the effect of the tax. Use the graph to answer the following questions. Price (P) (per cell phone) 250 220 New Swith tax Sno tax

Suppose that the government imposes a per-unit tax on cell phones. The tax is imposed on producers of cell phones and the amount of the tax is $50 per cell phone. The following graph shows the effect of the tax. Use the graph to answer the following questions. Price (P) (per cell phone) 250 220 New Swith tax Sno tax

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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What is the equilibrium P* and Q* before the imposition of the tax?

 

**Question 2** Suppose that the government imposes a per-unit tax on cell phones. The tax is imposed on producers of cell phones and the amount of the tax is $50 per cell phone. The following graph shows the effect of the tax. Use the graph to answer the following questions. **Graph Explanation:** - **Axes:** - The vertical axis represents the price (P) per cell phone. - The horizontal axis represents the quantity (Q) in billions of cell phones per year. - **Curves:** - The **Demand Curve (D)** slopes downward. - The **Supply Curve without tax (S<sub>no tax</sub>)** is the original supply curve before the tax is imposed. - The **New Supply Curve with tax (S<sub>with tax</sub>)** is shifted upwards by the amount of the tax, reflecting the increased cost to producers due to the $50 tax per cell phone. - **Equilibrium Points:** - The original equilibrium, where S<sub>no tax</sub> and D intersect, shows a price of $220 and a quantity of 1.1 billion cell phones. - The new equilibrium, where S<sub>with tax</sub> and D intersect, shows a higher price of $250 and a reduced quantity of 1 billion cell phones. This graph illustrates how the imposition of a tax affects supply, leading to higher prices for consumers and a reduction in the quantity of goods sold.
Transcribed Image Text:**Question 2** Suppose that the government imposes a per-unit tax on cell phones. The tax is imposed on producers of cell phones and the amount of the tax is $50 per cell phone. The following graph shows the effect of the tax. Use the graph to answer the following questions. **Graph Explanation:** - **Axes:** - The vertical axis represents the price (P) per cell phone. - The horizontal axis represents the quantity (Q) in billions of cell phones per year. - **Curves:** - The **Demand Curve (D)** slopes downward. - The **Supply Curve without tax (S<sub>no tax</sub>)** is the original supply curve before the tax is imposed. - The **New Supply Curve with tax (S<sub>with tax</sub>)** is shifted upwards by the amount of the tax, reflecting the increased cost to producers due to the $50 tax per cell phone. - **Equilibrium Points:** - The original equilibrium, where S<sub>no tax</sub> and D intersect, shows a price of $220 and a quantity of 1.1 billion cell phones. - The new equilibrium, where S<sub>with tax</sub> and D intersect, shows a higher price of $250 and a reduced quantity of 1 billion cell phones. This graph illustrates how the imposition of a tax affects supply, leading to higher prices for consumers and a reduction in the quantity of goods sold.
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How much of the tax per cell phone is paid by producers and how much is paid by consumers?

**Question 2** Suppose that the government imposes a per-unit tax on cell phones. The tax is imposed on producers of cell phones and the amount of the tax is $50 per cell phone. The following graph shows the effect of the tax. Use the graph to answer the following questions. **Graph Explanation:** The graph illustrates the supply and demand curves for cell phones, showing the impact of a $50 per-unit tax on producers. - **Axes:** - The vertical axis represents the price (P) in dollars per cell phone. - The horizontal axis represents the quantity (Q) in billions of cell phones per year. - **Curves:** - **Demand Curve (D):** Slopes downward, indicating that lower prices lead to higher quantities demanded. - **Supply Curve without Tax (S_no tax):** The original upward-sloping supply curve, indicating that higher prices lead to higher quantities supplied. - **Supply Curve with Tax (New S_with tax):** This curve is parallel to and above the original supply curve, shifted upwards by the $50 tax. - **Equilibrium Points:** - **Without Tax:** The intersection of the D curve and S_no tax, at a price of $200 and a quantity of 1.1 billion cell phones. - **With Tax:** The intersection of the D curve and New S_with tax, at a price of $250 and a reduced quantity of 1 billion cell phones. The graph demonstrates how the per-unit tax increases the price consumers pay (from $200 to $250) and decreases the quantity of cell phones sold (from 1.1 billion to 1 billion).
Transcribed Image Text:**Question 2** Suppose that the government imposes a per-unit tax on cell phones. The tax is imposed on producers of cell phones and the amount of the tax is $50 per cell phone. The following graph shows the effect of the tax. Use the graph to answer the following questions. **Graph Explanation:** The graph illustrates the supply and demand curves for cell phones, showing the impact of a $50 per-unit tax on producers. - **Axes:** - The vertical axis represents the price (P) in dollars per cell phone. - The horizontal axis represents the quantity (Q) in billions of cell phones per year. - **Curves:** - **Demand Curve (D):** Slopes downward, indicating that lower prices lead to higher quantities demanded. - **Supply Curve without Tax (S_no tax):** The original upward-sloping supply curve, indicating that higher prices lead to higher quantities supplied. - **Supply Curve with Tax (New S_with tax):** This curve is parallel to and above the original supply curve, shifted upwards by the $50 tax. - **Equilibrium Points:** - **Without Tax:** The intersection of the D curve and S_no tax, at a price of $200 and a quantity of 1.1 billion cell phones. - **With Tax:** The intersection of the D curve and New S_with tax, at a price of $250 and a reduced quantity of 1 billion cell phones. The graph demonstrates how the per-unit tax increases the price consumers pay (from $200 to $250) and decreases the quantity of cell phones sold (from 1.1 billion to 1 billion).
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