in a perfectly competitive market the market demand for a good A is P=50-Q and the market supply is p=5+0.5Q. find the equilibrium price, quantity and the total welfare in this market. a unit tax=$15/unit is imposed on good A. calculate the amount of dead weight loss, the amount of tax collected by the government and the share of the tax the consumers and the producers pay. who pays more? explain why? (hint: treat the tax as shift in the demand to the left)

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Elin HesselLv2

3 Jul 2019

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The market for packets of cigarettes has been described by the following supply and demand functions:

Supply: P = 10 + 4Q Demand: P = 100 - 5Q where P is the price in dollars and Q is the quantity of packets of cigarettes per month (in thousands).

Part A) Construct a graph of supply and demand for this market showing all intercepts. What are the equilibrium prices and quantities? Show these on your graph.

Part B) At the market equilibrium price, what would be the total monthly revenue?

Part C) Calculate consumer surplus at the market equilibrium and indicate this surplus as an area on your diagram.

Part D) Calculate producer surplus at the market equilibrium and indicate this surplus as an area on your diagram.

Part E) Assume that a per-unit tax of $9.00 per packet of cigarettes is imposed by the government on the suppliers of cigarettes. Depict this on your demand and supply diagram. (Hint: the new tax inclusive supply function will be: P = 19 + 4Q). What is the new market equilibrium quantity? What price will consumers now pay and what price will suppliers now receive?

Part F) How much is the government revenue from the tax on suppliers?

Part G) Calculate consumer surplus and producer surplus after the imposition of the tax and any deadweight loss associated with the tax. Indicate these surplus and tax revenue areas on your diagram. Explain what the deadweight loss represents.

Part H) Now assume that instead of imposing a per-unit tax of $9.00 per pack on the suppliers of cigarettes the government decides to apply the same per-unit tax of $9.00 on consumers. Depict this on your demand and supply diagram. (Hint: the new tax inclusive demand function will be: P = 91 - 5Q) What is the new market equilibrium quantity? What price will consumers now pay and what price will suppliers now receive? (5 marks)

Part I) How much is the government revenue from the tax on consumers? (1 mark)

Part J) Who bears the greatest burden of the tax in each case, producers or consumers? Does your answer depend on whether the tax is levied on producers or consumers?

I am really having difficulty understanding Part J - can that please be answered with some detail?

carminewildebeest911

Suppose demand and supply are given by Q^d=14-0.5P and Q^s=0.25P-1.

a)Determine the equilibrium quantity and price in this market. Show the equilibrium graphically.

b)Suppose a $12 excise tax is imposed on the good. Determine new supply and the new equilibrium quantity and price.

c)How much does producers' revenue change?

d)How much tax revenue does the government earn?

carminesheep157

In class, we studied taxes that were proportional to the price that consumers pay (i.e. if consumers pay a price p then the government collects tp from the producer). Imagine that now taxes are a fixed amount, so that the government gets t per unit sold, independent of the price at which the unit was sold. Define what an equilibrium is in this situation.

Hint: your sentence should probably begin; An equilibrium is a price-quantity pair (p , ) such that ....Assume that the market demand function is strictly decreasing, that the market supply function is strictly increasing, and that both these functions are continuous. Let p denote the equilibrium price of the good before tax and p denote the equilibrium price that consumers pay for the good after the tax t. Prove that p p < t. That is, the change in price that consumers must pay is less than the amount of the tax.