1. Below is a graph of the market for gram of legal recreational cannabis in MA. What is the equilibrium price and the equilibrium quantity sold in this market? Write the values here and label them on the graph as P* and Q* Price of Recreational Cannabis ($/Gram) 19.00 17.00 15.00 13.00 11.00 9.00 7.00 5.00 3.00 1.00 0 12 345 6 7 8 Quantity of Recreational Cannabis (10,000s of grams) Supply Demand 9 10 2. In MA, a city or town may impose an additional tax on cannabis sales in its locality. If we assume the tax payments are collected directly from the cannabis retailers, we typically model this as an increase in the cost of production to suppliers, which would be a shift in the supply curve. Draw a new supply curve in the graph above that exactly reflects a $2 tax on each gram sold. Be sure to label the height of the vertical distance between the old and new supply curves 3. With the new supply curve, if the price of cannabis remained at the old equilibrium price (from question 1), would there be a shortage or surplus of cannabis? 4. Describe the competitive market forces that would move the market from the old equilibrium price and quantity (from question 1) to the new equilibrium price and quantity (from question 2 with the new supply curve). Label the new equilibrium price and quantity. 5. Is the new equilibrium price greater or less than the total of the old equilibrium price plus the tax?
1. Below is a graph of the market for gram of legal recreational cannabis in MA. What is the equilibrium price and the equilibrium quantity sold in this market? Write the values here and label them on the graph as P* and Q* Price of Recreational Cannabis ($/Gram) 19.00 17.00 15.00 13.00 11.00 9.00 7.00 5.00 3.00 1.00 0 12 345 6 7 8 Quantity of Recreational Cannabis (10,000s of grams) Supply Demand 9 10 2. In MA, a city or town may impose an additional tax on cannabis sales in its locality. If we assume the tax payments are collected directly from the cannabis retailers, we typically model this as an increase in the cost of production to suppliers, which would be a shift in the supply curve. Draw a new supply curve in the graph above that exactly reflects a $2 tax on each gram sold. Be sure to label the height of the vertical distance between the old and new supply curves 3. With the new supply curve, if the price of cannabis remained at the old equilibrium price (from question 1), would there be a shortage or surplus of cannabis? 4. Describe the competitive market forces that would move the market from the old equilibrium price and quantity (from question 1) to the new equilibrium price and quantity (from question 2 with the new supply curve). Label the new equilibrium price and quantity. 5. Is the new equilibrium price greater or less than the total of the old equilibrium price plus the tax?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter7: Consumers, Producers, And The Efficiency Of Markets
Section: Chapter Questions
Problem 11PA
Related questions
Question
Answers to questions 4,5,6
Transcribed Image Text:1. Below is a graph of the market for gram of legal recreational cannabis in MA. What is the equilibrium
price and the equilibrium quantity sold in this market? Write the values here and label them on the
graph as P* and Q*
Price of Recreational Cannabis ($/Gram)
19.00
17.00
15.00
13.00
11.00
9.00
7.00
5.00
3.00
1.00
0
1 2
3 4 5 6
Quantity of Recreational Cannabis (10,000s of grams)
7
Supply
Demand
8 9
10
2. In MA, a city or town may impose an additional tax on cannabis sales in its locality. If we assume the
tax payments are collected directly from the cannabis retailers, we typically model this as an increase
in the cost of production to suppliers, which would be a shift in the supply curve. Draw a new
supply curve in the graph above that exactly reflects a $2 tax on each gram sold. Be sure to label the
height of the vertical distance between the old and new supply curves
3. With the new supply curve, if the price of cannabis remained at the old equilibrium price (from
question 1), would there be a shortage or surplus of cannabis?
4. Describe the competitive market forces that would move the market from the old equilibrium price
and quantity (from question 1) to the new equilibrium price and quantity (from question 2 with the
new supply curve). Label the new equilibrium price and quantity.
5. Is the new equilibrium price greater or less than the total of the old equilibrium price plus the tax?
6. So, are the producers able to pass the entire amount of the tax onto the consumers through the price
increase? Yes or no
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours…
Economics
ISBN:
9781337091985
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours…
Economics
ISBN:
9781337091985
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Microeconomics: Principles & Policy
Economics
ISBN:
9781337794992
Author:
William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:
Cengage Learning
