The annual demand and supply for liquor in a certain state is given by the following equation: Qd= 500,000 − 20,000P Qs=30,000P where P is the price per gallon and QD is quantity of gallons demanded per year. a. Suppose that a $1-per-gallon tax is levied on the price of liquor received by sellers. Use both graphic and algebraic techniques to show the impact of the tax on market equilibrium. b. Calculate (i) the excess burden of the tax, (ii) the amount of revenues collected, and (iii) the incidence of the tax between buyers and sellers.
The annual demand and supply for liquor in a certain state is given by the following equation: Qd= 500,000 − 20,000P Qs=30,000P where P is the price per gallon and QD is quantity of gallons demanded per year. a. Suppose that a $1-per-gallon tax is levied on the price of liquor received by sellers. Use both graphic and algebraic techniques to show the impact of the tax on market equilibrium. b. Calculate (i) the excess burden of the tax, (ii) the amount of revenues collected, and (iii) the incidence of the tax between buyers and sellers.
Chapter12: The Partial Equilibrium Competitive Model
Section: Chapter Questions
Problem 12.10P
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The annual demand and supply for liquor in a certain state is given by the following equation:
Qd= 500,000 − 20,000P Qs=30,000P
where P is the price per gallon and QD is quantity of gallons demanded per year.
a. Suppose that a $1-per-gallon tax is levied on the price of liquor received by sellers. Use both graphic and algebraic techniques to show the impact of the tax on
b. Calculate (i) the excess burden of the tax, (ii) the amount of revenues collected, and (iii) the incidence of the tax between buyers and sellers.
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