Tax incidence. Given: Demand (D): P = 100 – 1.5 Q Q* = 40 P*=40 Supply (S): P = 20 + 0.5 Q a. Suppose a specific tax of P10 per unit is imposed on producers. i. What is the new supply function? ii. Solve for the new equilibrium quantity and price after the tax is imposed. b. How much will the consumer pay for the good (price)? c. How much will the producer sell for this good (price)? d. What is the amount of total tax revenues? e. Who bears the burden of tax? Why? f. Calculate the elasticity of demand and supply to validate your answer in letter e. Discuss your answers.

Tax incidence. Given: Demand (D): P = 100 – 1.5 Q Q* = 40 P*=40 Supply (S): P = 20 + 0.5 Q a. Suppose a specific tax of P10 per unit is imposed on producers. i. What is the new supply function? ii. Solve for the new equilibrium quantity and price after the tax is imposed. b. How much will the consumer pay for the good (price)? c. How much will the producer sell for this good (price)? d. What is the amount of total tax revenues? e. Who bears the burden of tax? Why? f. Calculate the elasticity of demand and supply to validate your answer in letter e. Discuss your answers.

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter5: Elasticity Of Demand And Supply

Section5.A: Appendix: Price Elasticity And Tax Incidence

Problem 1AQ

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