Principles of Microeconomics
7th Edition
ISBN: 9781305156050
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 6, Problem 10PA
Subpart (a):
To determine
The equilibrium price and quantity.
Subpart (b):
To determine
The equilibrium price and quantity.
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Look at the figure above. If the government assesses a tax of $0.75 on each latte, the price the consumer pays for a latte after the tax will: (explain please)
increase from $2 to $2.75.
increase from $2 to $2.50.
increase from $2 to $2.25.
change, but we cannot determine by how much.
Suppose the market for cigarette is competitive. An economist estimates the price elasticity of demand and supply for cigarette are -0.8 and 0.7 respectively. Suppose the government imposes a per-unit tax of $45
Some economists believe that a sales tax, in general, is undesirable. Explain. Despite this, why do most countries still impose a tax on cigarette? Explain plausible arguments.
Effect of a tax on buyers and sellers
The following graph shows the daily market for jeans. Suppose the government institutes a tax of $10.15 per pair. This places a wedge between the price buyers pay and the price sellers receive.
0100200300400500600700800900100050454035302520151050PRICE (Dollars per pair)QUANTITY (Pairs of jeans)Tax WedgeDemandSupply
Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.
Quantity
Price Buyers Pay
Price Sellers Receive
(Pairs of jeans)
(Dollars per pair)
(Dollars per pair)
Before Tax
After Tax
Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table.
Tax Burden
Elasticity…
Chapter 6 Solutions
Principles of Microeconomics
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