The government of a State has been experiencing an increase in number of obesity cases. Research suggests an increase in consumption of a particular fast food item is responsible for high number of obesity cases. As a result, the government of that State is considering an imposition of $1 tax. Monthly demand and supply for this good are QD=21-1P and QS= -1+1P respectively.Draw the demand and Supply curve for fast food before the tax is imposed. Calculate the equilibrium price and quantity, consumer and producer surplus, and label them on the graph.Calculate the price elasticity of demand and supply for fast food. If the State government imposes a tax, who will bear the most of the burden of the tax?Suppose that the State government finally imposes a $1 tax on fast food. What will the new equilibrium price and quantity? Include the tax on your graph. Calculate the consumer and producer surplus and label them on the graph.Is there any deadweight loss resulting from the tax on that good? If so, calculate it and if not, explain? Would you personally advise the State government to impose the tax or not?

The point where demand is equal to its supply is the equilibrium point, at this point the price of…

Answered: The government of a State has been…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The government of a State has been experiencing an increase in number of obesity cases. Research suggests an increase in consumption of a particular fast food item is responsible for high number of obesity cases. As a result, the government of that State is considering an imposition of $1 tax. Monthly demand and supply for this good are Q_D=21-1P and Q_S= -1+1P respectively.

Draw the demand and Supply curve for fast food before the tax is imposed. Calculate the equilibrium price and quantity, consumer and producer surplus, and label them on the graph.
Calculate the price elasticity of demand and supply for fast food. If the State government imposes a tax, who will bear the most of the burden of the tax?
Suppose that the State government finally imposes a $1 tax on fast food. What will the new equilibrium price and quantity? Include the tax on your graph. Calculate the consumer and producer surplus and label them on the graph.
Is there any deadweight loss resulting from the tax on that good? If so, calculate it and if not, explain? Would you personally advise the State government to impose the tax or not?

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