The demand and supply of coffee are shown here, with an equilibrium price of $4 per pound and an equilibrium quantity of 4,000 pounds per week. Suppose the government offers $3 tax per p method, finding the new quantity and the prices faced by buyers and sellers. Polygon * Undo * Redo x Reset 10 5 3 2 10 Quantity of coffee per week, in thousands of pounds Price, S/pound
The demand and supply of coffee are shown here, with an equilibrium price of $4 per pound and an equilibrium quantity of 4,000 pounds per week. Suppose the government offers $3 tax per p method, finding the new quantity and the prices faced by buyers and sellers. Polygon * Undo * Redo x Reset 10 5 3 2 10 Quantity of coffee per week, in thousands of pounds Price, S/pound
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The demand and supply of coffee are shown here, with an equilibrium price of $4 per pound and an equilibrium quantity of 4,000 pounds per week. Suppose the government offers $3 tax per pound of coffee. Use the polygon tool to implement the wedge
method, finding the new quantity and the prices faced by buyers and sellers.
Polygon
+ Undo
* Redo
x Reset
10
8
2
1
2
3
4
7
10
Quantity of coffee per week, in thousands of pounds
Price, $/pound
Expert Solution
Step 1
When tax is imposed on the good, new equilibrium quantity decreases. Price received by sellers also decreases and price paid by buyers increases.
Tax wedge = price paid by buyers - price received by sellers.
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