Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 19, Problem 3.3P
To determine
Calculate the excess burden of tax and draw the graph of consumer’s responsiveness after the implementation of tax.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Use the concept of Price Elasticity of Demand to explain why the public policy recommendation of raising taxes on cigarettes causes State revenues to rise while also effectively deterring smoking among young people. Be sure to consider availability of substitutes and the effect of the percentage spent of each buyer’s budget when formulating a response. Who bears the brunt of the tax – the consumer or the producer? Are there any potential negative side effects of increasing taxes on cigarettes?
Illustrate and explain using a diagram how to imposition of an excise tax on petrol at the time of purchase
A) affect the equilibrium price and quantity of petrol
B) how the cost of this tax is distributed between the buyers and sellers
C) illustrate and explain by using a diagram who will pay the cost of this petrol excise tax if demand for petrol is perfectly price inelastic.
Suppose that Felicia gets a tax rebate of
$2,500
to ease the effect of the sales tax. What would her consumption of food be now?
(Again,
use an arc income elasticity to answer this question instead of a point income
elasticity.)
Felicia's consumption of food would now be
nothing
units
Chapter 19 Solutions
Principles of Economics (12th Edition)
Knowledge Booster
Similar questions
- In a market where the supply curve is perfectly inelastic how does an excise tax affect the price paid by consumers and the quantity bought and sold?arrow_forwardA city’s hotel tax used to be 20%. Today it is 12%. Total hotel tax revenue today is greater at a 12% tax than hotel tax revenue used to be at the 20% rate. Use a tax incidence (or tax shifting) supply and demand diagram to show both higher total tax revenue at the 12% tax rate, and lower total tax revenue at the 20% tax rate. Draw Arthur Laffer’s curve to show both the tax percentage reduction, and the total tax revenue increase. Label both diagrams fully.arrow_forwardThe demand and supply equations for a product are: Q= 300 — 6P and Q.= -40 + 6P. Determine the market equilibrium and draw graphs. Suppose that the government decides to impose a flat tax of 10% on each unit sold. Show that the price that consumers pay would be the same if the government imposed a tax of Rs. 1.70 per unit sold. Draw graphs and Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producer surplus, and deadweight loss.arrow_forward
- Suppose the government imposes a $3 excise tax on the sale of sweaters in Alaska by charging suppliers $3 for each sweater sold. Using economic analysis, we would predict that: the price of sweaters will increase but by less than $3 consumers of sweaters will bear the entire amount of the tax the price of sweaters will decrease by $3 the price of sweaters will increase by $3 From the lecture video on elasticity, suppose a surfboard producer was considering lowering the price of surfboards in order to increase total revenues. Under what conditions would this idea work?) Always, because when producers lower price, consumption increases. This is the Law of Demand. When the elasticity of demand is inelastic. When the elasticity of demand is elastic. When the elasticity of demand is -0.58.arrow_forwardQuestion 11 of 26 > O Macmillan Learning The graphs show the market for bags of potato chips, which is currently at an equilibrium price of $1.33 per bag and an equilibrium quantity of 5.33 million bags. Suppose that, in an attempt to lower blood pressure and reduce healthcare costs, the government imposes a $1.00 excise (or commodity) tax on potato chips. Suppose the government levies this tax on manufacturers for each bag of potato chips they produce. Please shift the appropriate curve or curves to illustrate this. Price ($ per bag) 5.0 4.5 4.0 3.5 3.0 2.0 What is the price paid per bag by consumers (Pc) with this new tax? Incorrect Attempt 2 2.5 Supply 1.5 1.0 10 0.5 De 0.0 0 1 2 3 4 5 6 7 8 9 10 Quantity (millions of bags) P = $ 2arrow_forwardIf the government establishes a support price for sugar $12 per cwt. (Hundered pounds) and is willing to buy up any surplus sugar at that price, indicate on your graph the quantity supplied, quantity demanded, and quantity purchased by the government. If the units are million cwt, how much money is required for the government purchases? Show this amount on your graph. Demand for sugar is: Q = 20 - PSupply for sugar is: Q = 2 + P I have calculated that the equilibrium is P = 9 and Q = 11 quantities are in million hundred weight (cwt) and price is dollars per cwt.arrow_forward
- At the current market equilibrium, the price elasticity of supply for a certain good is much lower than the price elasticity of demand. if the government imposes a $5 specific tax on this good, who will bear more of the burden of the tax?arrow_forwardTaxes & Subsidies Suppose that, in order to incentivize drivers to switch to electric vehicles, a government imposes a tax to be added to the purchase price of gasoline cars and a subsidy (discount voucher) on the purchase of electric cars. You can assume whatever you think is reasonable about the demand and supply elasticities to prices. Illustrate the likely effects of those policies using graphs. Discuss: What happens to the quantity of gasoline and electric cars in equilibrium? Who bears the burden of the tax, and who enjoys the subsidy in your model (between producers and consumers)? As a policymaker, do you want demand and supply curves to be more or less price elastic for the policy to work?arrow_forwardIn the recent budget announcement, federal minister announced the federal excise duty on mobile phone calls that are longer than three minutes has been set at Rs1 per call, Rs0.1 on every SMS and Rs5 on every GB of internet data. However, the proposed tax was not approved in the cabinet meeting later on. Now suppose if the following tax would have been approved. Use supply-and-demand framework/diagram of the market for internet and voice call packages without the tax. Assume hypothetical values and show the price paid by consumers, the price received by producers, and the quantity of such bundles. What is the difference between the price paid by consumers and the price received by producers? Now draw a supply-and-demand diagram for the internet and voice bundles market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of bundles sold. What is the difference between the price paid by consumers and the price received by…arrow_forward
- The following graph shows the daily market for wine. Suppose the government institutes a tax of $11.60 per bottle. This places a wedge between the price buyers pay and the price sellers receive.arrow_forwardes The demand for gasoline is P=5-0.002 Q and the supply is P=0.2 + 0.002 Q, where P is in dollars and Q is in gallons. Instructions: Round your answer to the nearest penny (2 decimal places). If a tax of $0.6/gallon is placed on petrol, what is the incidence of the tax? Tax incidence to the consumer: $ Tax incidence to the supplier: $ Instructions: Round your answers to the nearest whole number. What is the lost consumer surplus? $ What is the lost producer surplus? $arrow_forwardDraw two supply/demand graphs, one with a highly elastic demand and the other with a highly inelastic demand. (If you don’t know what this means, review elasticity.) Give your two supply curves a similar slope and make the equilibrium price the same for both graphs. On each graph put a price floor at the same level and identify the surplus and deadweight loss. In which case is the effect from the price floor larger?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Microeconomics: Principles & PolicyEconomicsISBN:9781337794992Author:William J. Baumol, Alan S. Blinder, John L. SolowPublisher:Cengage Learning
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Microeconomics: Principles & Policy
Economics
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:Cengage Learning
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax