Suppose that the market for e-cigarettes can be represented by the following equations: Demand: P = 60 - 2QD Supply: P = 21 + 4QS where P is the price per device, and Q represents quantity of e-cigarettes, represented in millions of devices consumed. a) Calculate the equilibrium price and quantity of e-cigarettes. b) Calculate the producer surplus and consumer surplus at the initial equilibrium price and quantity from part a). Illustrate on a graph. c) Concerned over public health, the government introduces a sin tax of $9 per device sold (levied on consumers). What is the new quantity of e-cigarettes sold in the market? What price do consumers pay? What price do producers receive? Illustrate on a graph.
Suppose that the market for e-cigarettes can be represented by the following equations:
Demand: P = 60 - 2QD
Supply: P = 21 + 4QS
where P is the price per device, and Q represents quantity of e-cigarettes, represented in millions of devices consumed.
a) Calculate the
b) Calculate the
c) Concerned over public health, the government introduces a sin tax of $9 per device sold (levied on consumers). What is the new quantity of e-cigarettes sold in the market? What price do consumers pay? What price do producers receive? Illustrate on a graph.
d) Calculate the new producer surplus and consumer surplus associated with your answer to part c)
e) How much revenue does the government raise from the tax?
f) How does the sum of consumer surplus, producer surplus, and revenue after the tax (your answers to part d) and part e)) compare to the sum of producer and consumer surplus found before the tax (your answer to part b))? What does the difference between the two represent?
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