Let us consider two types of goods in an economy: demerit goods and all other goods. The government is concerned with the excessive consumption of demerit goods in an economy and therefore decides to levy a commodity tax such that the tax burden is fully borne by the consumers. Explain with the help a well-labelled diagram the distortions created by such commodity tax on demerit goods assuming the same effect on individual welfare. What determines the size of the distortions in this case?

Let us consider two types of goods in an economy: demerit goods and all other goods. The government is concerned with the excessive consumption of demerit goods in an economy and therefore decides to levy a commodity tax such that the tax burden is fully borne by the consumers. Explain with the help a well-labelled diagram the distortions created by such commodity tax on demerit goods assuming the same effect on individual welfare. What determines the size of the distortions in this case?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter6: Elasticities

Section: Chapter Questions

Problem 16P

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Let us consider two types of goods in an economy: demerit goods and all other goods. The government is concerned with the excessive consumption of demerit goods in an economy and therefore decides to levy a commodity tax such that the tax burden is fully borne by the consumers. Explain with the help a well-labelled diagram the distortions created by such commodity tax on demerit goods assuming the same effect on individual welfare. What determines the size of the distortions in this case? PLEASE INCLUDE DIAGRAM
Suppose the California legislature passed a sweeping law to lower the number of regulations for building homes such as decreasing the parking requirements and setback requirements. Suppose there is a housing tax. What is the effect of this law on the PES for housing? What effect would this law have on the tax burden for buyers?
Suppose the California legislature passed a sweeping law to lower the number of regulations for building homes such as increasing the parking requirements and setback requirements. Suppose there is a housing tax. What is the effect of this law on the PES for housing? What effect would this law have on the tax burden for buyers?
Governments often place so-called sin taxes on goods or services such as cigarettes and alcohol. These kinds of taxes are popular with politicians because they are usually more palatable to voters than income taxes. To understand the effect of such a tax, consider the monthly market for rum, which is shown on the following graph. NOTE: the fill in blank options are (increases by a greater and greater amount, increases and then decreases, or increases at a constant rate)
PLEASE ANSWER THE QUESTION d,e and f. thanks Jack has a utility function U(x1x2)=2(x1)(x2)^2 , and the price of x1 is 3$ and the price of x2 is $1 and Jack has an income of $90. a) How much of each good will he demand? Let’s now consider the case where the government imposes quantity tax which is a tax on the amount of a good consumed. b) A 1$ quantity tax (t) is placed on x1 so that now x1 costs $4 to Jack while his income and the price of x2 stay the same. How much of good x1 and x2 does he now demand? c) What will be the tax revenue of government? In other words, tax revenue is the amount equal to tax (t, which is 1$ here) times the quantity demanded by Jack (the answer of optimum x1 in part (B))? Government decided to give back all of the quantity tax revenue to Jack. In other words, his income rose by an amount equal to collected tax revenue in part (c). d) How much of good x1 and x2 does he demand now? (x1 still costs to Jack $4 but his income increased) e) Would Jack…
The following graph shows the daily market for jeans when the tax on sellers is set at $0 per pair. Suppose the government institutes a tax of $23.20 per pair, to be paid by the seller. (Hint: To see the impact of the tax, enter the value of the tax in the Tax on Sellers field and move the green line to the after-tax equilibrium by adjusting the value in the Quantity field. Then, enter zero in the Tax on Sellers field. You should see a tax wedge between the price buyers pay and the price sellers receive.) Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Market for Jeans Quantity (Pairs of jeans) Demand Price (Dollars per pair) Supply Price (Dollars per pair) Supply Shifter Tax on Sellers (Dollars per…
President Biden has proposed a $2.2 trillion Infrastructure package to repair roads and bridges. Some policy analysts think that at least one part of the funding will be an increase in the federal excise tax on gasoline. Suppose the size of this increase in excise tax is written as t. Using a graph analyze and explain the impact of this t dollars per gallon increase in excise tax on gasoline. Which of the curve(s), if any, would shift, and why? Graphically, show the new equilibrium price and quantity (labeling it P1 and Q1). At the new equilibrium, please determine how much of the tax increase was borne by gasoline consumers and how much was absorbed by gasoline sellers? Indicate the incidence of taxation for both consumers and sellers on the graph and explain. What will determine whether consumers or sellers will bear a higher relative burden of taxation? Please explain in detail.
Suppose the Punjab government requires Coke drinkers to pay a $2 tax on each case of Cokepurchased.a. Draw a supply-and-demand diagram of the market for Coke without thetax. Show the price paid by consumers, the price received by producers,and the quantity of Coke sold. What is the difference between the pricepaid by consumers and the price received by producers?b. Now draw a supply-and-demand diagram for the Coke market with thetax. Show the price paid by consumers, the price received by producers,and the quantity of Coke sold. What is the difference between the pricepaid by consumers and the price received by producers? Has the quantityof Coke sold increased or decreased?
Suppose that in the absence of any tax whatsoever, the equilibrium price of beer is €1.50 per pint. Now suppose that the government requires beer drinkers to pay a total tax (sales tax plus alcohol duty) of €0.50 on every pint of beer purchased. a) Draw a supply-and-demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers?b)Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased?
The government has introduced an excise duty of 10 percent on mealie meal. This essentially means the price of mealie meal, an essential item in most households, has increased by 10 percent. As the chief economist responsible for managing a social protection programme, you have been asked to make a proposal on how you can minimise the adverse effect of the excise duty on low income households. Using your knowledge of compensating or equivalent variation, show how you would ensure that these households are protected from such a measure. Would Lump sum taxes be better than unit (ad valorem or percentage) taxes in this context?
Jack has a utility function U(x1x2)=2(x1)(x2)^2 , and the price of x1 is 3$ and the price of x2 is $1 and Jack has an income of $90. a) How much of each good will he demand? Let’s now consider the case where the government imposes quantity tax which is a tax on the amount of a good consumed. b) A 1$ quantity tax (t) is placed on x1 so that now x1 costs $4 to Jack while his income and the price of x2 stay the same. How much of good x1 and x2 does he now demand? c) What will be the tax revenue of government? In other words, tax revenue is the amount equal to tax (t, which is 1$ here) times the quantity demanded by Jack (the answer of optimum x1 in part (B))? Government decided to give back all of the quantity tax revenue to Jack. In other words, his income rose by an amount equal to collected tax revenue in part (c). d) How much of good x1 and x2 does he demand now? (x1 still costs to Jack $4 but his income increased) e) Would Jack be as better off as he was before the quantity…
In the past, some counties and countries have imposed taxes on sugar, saturated fats, and food made with those ingredients as a way to reduce consumption of those foods. Assume the government imposes a unit tax on all chocolate. Answer the following questions: Will consumers be able to shift this tax to sellers? If yes explain why/how. If no explain why not. Based on your answer to c, who will bear the incidence of this tax?