Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 8, Problem 1PA
Sub part (a):
To determine
The impact of tax on pizza.
Sub part (b):
To determine
The impact of tax on pizza.
Sub part (c):
To determine
The impact of tax on pizza.
Expert Solution & Answer
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(e) (i) Calculate the consumer surplus after the tax.
Suppose that the government imposes a tax on cigarettes. Use the diagram below to answer the
questions. D is the demand curve before tax, S is the supply curve before tax and ST is the supply curve
after the tax.
Answer:
Answer
Price
S-
18
Question 18
12
10
(e) (ii) Calculate the producer surplus after the tax.
Answer:
10 12
Qua
Answer
Question 19
(e) (ii) Tax revenue.
Answer:
Question 20
Price received by producers
(e) (iv) Deadweight loss
Quantity of cigarettes sold
Answer:
Price paid by consumers
Answer
the tax
Question 21
(e) (v) Total surplus after tax
Answer:
S PhotoGrid
2. Using the following graph, answer the following questions. Also, show/Label your answers
for parts a-e on the graph as well.
Price
20
18
16
14
12
10
6.
4 6 8 10 12 14 16 Quantity
2
a. Suppose a $4 per-unit tax is imposed on the sellers of this good. What price will buyers pay
for the good after the tax is imposed?
b. Suppose a $4 per-unit tax is imposed on the sellers of this good. How much is the burden of
this tax on the buyers in this market?
The market for pizza is characterized by adownward-sloping demand curve and an upwardsloping supply curve.a. Draw the competitive market equilibrium.Label the price, quantity, consumer surplus, andproducer surplus. Is there any deadweight loss?Explain.b. Suppose that the government forces eachpizzeria to pay a $1 tax on each pizza sold.Illustrate the effect of this tax on the pizzamarket, being sure to label the consumer surplus,producer surplus, government revenue, anddeadweight loss. How does each area compare tothe pre-tax case?c. If the tax were removed, pizza eaters and sellerswould be better off, but the government wouldlose tax revenue. Suppose that consumers andproducers voluntarily transferred some of theirgains to the government. Could all parties(including the government) be better off than theywere with a tax? Explain using the labeled areas inyour graph
Chapter 8 Solutions
Essentials of Economics (MindTap Course List)
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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_forwardI need both questionsarrow_forwardThe demand and supply equations for a product are: Q^d=300-6p and Q^x=-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 graph and explain . Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producers surplus and dead weight lossarrow_forward
- Suppose a local government votes to impose an excise tax of $0.90 per bottle on the sales of bottled water. (Assume that all bottles are identical and residents cannot shop elsewhere.) Before the tax the equilibrium price and quantity are $1.20 and 2000 bottles per day. After the tax is imposed, market equilibrium adjusts to a price of $1.70 and quantity of 1300 bottles per day. a. Draw the supply and demand diagram before and after the excise tax is imposed. 1.) Using the line drawing tool, plot the original and new supply curves and label the lines properly. 2.) Using the point drawing tool, indicate the original and new equilibrium points and label these points properly. Carefully follow the instructions above, and only draw the required objects. Price ($ per bottle) 3.00 2.80- 2.60- 2.40- 2.20- 2.00- 1.80- 1.60- 1.40- 1.20- 1.00- 0.80- 0.60- 0.40- 0.20- 0.00+ 0 1000 2000 Quantity (bottles per day) 10 3000arrow_forwardSuppose the market for ice cream is characterized by a downfall sloping demand curve and an upward sloping supply curve. Now figure an excuse tax, to be collected by ice cream sellers, is imposed on the market. It follows that the consumer surplus will _____, and the producer surplus will______ A. Increase, increase B. Increase, decrease C. Decrease, increase D. Decrease, decreasearrow_forwardSuppose the current equilibrium price of cheese pizzas is $10.00, and 11 million pizzas are sold per month. After the federal government imposes a $3.00 per pizza tax, the equilibrium price of pizzas rises to $12.00, and the equilibrium quantity falls to 9 million. Compare the economic surplus in this market when there is no tax to when there is a tax on pizza. With the tax, the change in economic surplus is O A. the new surplus equal to the area under the demand curve and above the supply curve for the market equilibrium quantity. B. the deadweight loss equal to the area under the demand curve and above the supply curve for units between the quantity with the tax and market equilibrium quantity. O C. the deadweight loss equal to the area under the demand curve and above the supply curve for the quantity with the tax. D. the new surplus equal to the area under the demand curve and above the supply curve for units between the quantity with the tax and market equilibrium quantity. New…arrow_forward
- The market supply and demand for a product are shown in the diagram below. Now supose the government imposes a per-unit tax of $1 on producers. (i) What happens to total revenue received by producers after they pay the tax to the government? Explain. (ii) Will producer surplus increase, decrease, or stay the same? (iii) Will total surplus increase, decrease, or stay the same? Explain.arrow_forwardThe daily demand and supply curves for milk in the small town of Dairyville are as shown in the figure. Suppose the government imposes a price ceiling on milk of $5 per gallon. a. How many gallons of milk will be bought and sold each day after the imposition of the price ceiling? gallons per day b. What will be the excess demand for milk each day after the imposition of the price ceiling? gallons per day c. What will be consumer surplus after the imposition of the price ceiling? $ per day d. What will be producer surplus after the imposition of the price ceiling? $ per day e. What will be the loss in total economic surplus each day that results from the imposition of the price ceiling? $ per dayarrow_forwardWhen a tax of $1.00 per gallon is imposed on sellers of gasoline, the supply curve for gasoline shifts upward, but by less than $1.00. a. True b. Falsearrow_forward
- Question 27 When the government places a tax on the producer of a good or service O both the supply and demand curves for the good or service shifts to the left. the supply curve for the good or service shifts to the right. O the demand curve for the good or service shifts to the right. the supply curve for the good or service shifts to the left. the demand curve for the good or service shifts to the left.arrow_forwardQUESTION 5 Consider the following demand and supply curves Demand: P = 50+i-70, Supply: P=wages + 30 Where i is income and wis wages If the government places a 10-dollar tax on producers, what would be the resulting consumer surplus?arrow_forwardWhat happens to consumer and producer surplus when the sale of a good is taxed? How doesthe change in consumer and producer surplus compare to the situation when good is not taxed?Explain with the help of graphs.arrow_forward
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