1. The demand curve for cab rides is p = 5 – 1,000' y where y represents passenger miles. The supply curve is p = 2 for y < 2,500 and it becomes perfectly inelastic at y = 2,500. (i) Find the equilibrium price and quantity. (ii) Find the consumers' surplus and producers' surplus. (iii) Suppose that an excise tax of e = 0.50 per passenger mile is imposed on suppliers. Find the new equilibrium price and quantity.

1. The demand curve for cab rides is p = 5 – 1,000' y where y represents passenger miles. The supply curve is p = 2 for y < 2,500 and it becomes perfectly inelastic at y = 2,500. (i) Find the equilibrium price and quantity. (ii) Find the consumers' surplus and producers' surplus. (iii) Suppose that an excise tax of e = 0.50 per passenger mile is imposed on suppliers. Find the new equilibrium price and quantity.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Application: The Cost Of Taxation

Section: Chapter Questions

Problem 1PA

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Question

1. The demand curve for cab rides is p = 5 ·
y
where y represents passenger miles.
%3D
1,000'
The supply curve is p = 2 for y< 2,500 and it becomes perfectly inelastic at y = 2,500.
(i) Find the equilibrium price and quantity.
(ii) Find the consumers' surplus and producers' surplus.
(iii) Suppose that an excise tax of e = 0.50 per passenger mile is imposed on suppliers.
Find the new equilibrium price and quantity.
(iv) Finally, suppose that a sales tax of t= 0.50 is imposed on consumers. (The excise tax is
still in place.) Find the new equilibrium price and quantity.
(v) Explain briefly why the economic burden of the tax and the deadweight loss from
imposing the tax are different for the excise tax and the sales tax.

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