The tax-inclusive price of a carton of cigarettes in Canada is $100 per carton. Per capita consumption is 10 cartons. Federal and provincial taxes are currently $50 per carton. Suppose the two levels of government wish to increase the cigarette tax by 20 percent. If the price elasticity of demand is -0.25, what is the additional per capita tax revenue that the two levels of government can expect to

The tax-inclusive price of a carton of cigarettes in Canada is $100 per carton. Per capita consumption is 10 cartons. Federal and provincial taxes are currently $50 per carton. Suppose the two levels of government wish to increase the cigarette tax by 20 percent. If the price elasticity of demand is -0.25, what is the additional per capita tax revenue that the two levels of government can expect to

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.10P

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Consider a country which taxes two goods, diamonds and bread. Each good has a supply elasticity of 1. The demand elasticity for diamonds is ηdd = −4; the demand elasticity for bread is ηbd = −0.25. In the market equilibrium, bread costs pb = $1 and a quantity of 100 is sold; diamonds cost $1000 and 10 are sold. Suppose a tax of τb = $0.50 is imposed on bread, and a tax of τd = $200 is imposed on diamonds. (a) What portion of the tax on bread is borne by consumers? What portion of the tax on diamonds is borne by consumers? (b) What is the deadweight loss from the tax on bread? What is the deadweight loss from the tax on diamonds? (c) Are these taxes optimal according to the Ramsey rule? If not, which tax should be increased and which should be decreased? (d) Are there any equity considerations which would argue against your answer for part (c)
According to studeis undertaken by the U.S. Department of Agriculture, the price elasticity of demand for cigarettes is between -0.3 and -0.4 and the income elasticity is about +0.5. Suppose congress, influenced by studies linking cigarette smoking to cancer, plans to raise the excise tax on cigarettes so the price rises by 10 percent. Estimate the effect the price increase will have on cigarette consumption and consumber spending on cigarettes (in percentage terms).
The gasoline demand equation is 100 -20P and the gasoline supply one is 48P. I am trying to figure out if the government levies a Pigouvian tax of $50/ton CO2, what is the effective tax per gallon of gas? Each gallon of gasoline releases 20 lbs (or 0.009 tons) of CO2 when combusted.
Suppose demand is given by ??(?) = 1 – ? and supply ??(?) = ?, with prices in dollars. If buyers pay a 10 cent tax, what is the after tax demand? Do the same computations as the previous exercise and show that the outcomes are the same. Suppose both demand and supply are linear, ??=?−? and ??=?+?p . A quantity tax is a tax that has a constant value for every unit bought or sold. Determine the new equilibrium supply price ?? and demand price ?? when a quantity tax of amount t is applied. The Manning Company has two factories, one that makes roof trusses, and one that makes cabinets. With? workers, the roof factory produces trusses per day. With n workers, the cabinet plant produces 5. The Manning Company has 400 workers to use in the two factories. Graph the production possibilities frontier. (Hint: Let ? be the number of trusses produced. How many workers are used making trusses?) Alarm & Tint, Inc., has 10 workers working a total of 400 hours per week. Tinting takes 2 hours…
Please help me to ensuere that my answers are correct. Complete all of the blanks. What is the pre-tax equilibrium price Using the demand schedule, what is the elasticity of demand (using the traditional method) if the price had changed the equilibrium price to $60 ? Is it (elastic, inelastic, unit elastic, perfectly elastic, perfectly inelastic): Suppose a $10 tax will be imposed on the production of item A, who will carry more of the burden? (consumer, supplier, neither, equal) The consumer surplus after taxes is The total surplus after taxes is 3 : The total tax revenue is The tax has now been removed because people thought it was unfair. Will total surplus increase, decrease, or stay the same? ]By what amount if any? [ The government decides to impose a price floor at $20. After their action, what is the market price? If there is a shortage or surplus, how much is it? (0 if there isn't one) They then repeal the price floor and create a price ceiling at $40. What is the market price…
Consider the following demand and supply function of product ZT: Qd = 25 - 1.25 P Qs = -9 + 3 P Note: Determine the equilibrium point first to answer the following question. compute also the sales tax in order to answer those ff questions 7. How much is the change in the price for the consumer, when additional sales tax is 0.85 per unit? Use a number, 2 decimal values, no commas, no space, no signs. * 8. How much is the buying price when sales tax is imposed? Use a number, 2 decimal values, no commas, no space, no signs. *
Suppose households supply 500 billion hours of labor per year and have a tax elasticity of supply of 0.16. If the tax rate is increased by 19.6 percent, by how many hours will the supply of labor decline? a) 28.67 billion b) 1.568 trillion c) 2.465 trillion d) 3.422 trillion e) 9.183 trillion
Calculate the percentage of the tax borne by the demander and supplier in each of the following cases:Instructions: Enter your responses rounded to the nearest whole number. Elasticityof demand Elasticityof supply Percent borne by demander Percent borne by supplier a. ED = 0.1 ES = 0.5 % % b. ED = 1.0 ES = 2.0 % % c. ED = 1.3 ES = 0.9 % % d. ED = 1.9 ES = 0.7 % % e. Summarize your findings regarding relative elasticity and tax burden. Consumers bear a greater portion of the tax burden because consumers choose to buy the good. Whichever group (producers or consumers) has the lower elasticity bears the greater portion of the tax burden. Whichever group (producers or consumers) has the higher elasticity bears the greater portion of the tax burden. Producers usually bear a greater portion of the tax burden because the government generally levies more taxes on producers.
The government's policy goal is to reduce sugar consumption since consuming a lot of sugar is linked with negative health outcomes such as diabetes and hearth disease. In order to discourage consumers from consuming sugary soft drinks, the government is considering placing a sales tax on soda. Government economists have estimated the price elasticity of demand is -2.Which of the following statements is true? a.The tax on sugary soft drinks will likely decrease the demand for sugar-free soft drinks. b.Since consumers' demand for sugary soft drinks is elastic, the tax on sugary soft drinks will likely raise considerable revenue but likely will not reduce the consumption of sugary soft drinks by consumers. c.Since consumers' demand for sugary soft drinks is elastic, the tax will likely work to discourage sugary soft drink consumption. d.Taxes do not discourage consumers from consuming products.
Suppose the supply of a good is given by the equation QS=600P−1,200 , and the demand for the good is given by the equation QD=1,600−200P , where quantity (Q) is measured in millions of units and price (P) is measured in dollars per unit. The government decides to levy an excise tax of $2.00 per unit on the good, to be paid by the seller. Calculate the value of each of the following, before the tax and after the tax, to complete the table that follows: 1. The equilibrium quantity produced 2. The equilibrium price consumers pay for the good 3. The price received by sellers Before Tax After Tax Equilibrium Quantity (Millions of units) Equilibrium Price per Unit Paid by Consumers Price per Unit Received by Sellers Given the information you calculated in the preceding table, the tax incidence on consumers is per unit of the good, and the tax incidence on producers is per unit of the good. The government receives in tax revenue from levying an excise tax of $2.00 per unit on this good. True…
Suppose that a market is described by the following supply and demand equations:Qs=2PQD=300-Pa.Solve for the equilibrium price and the equilibrium quantity.b.Solve that a tax of T is placed on buyers,so the new denad equation is QD=300-(P+T).Solve for the new equilibrium.What happens to the price receive by sellers,the price paid by buyers.and the quantity sold?c.Tax revenue is TxQ.Use your answer from part(b)to solve for tax revenue as a function of T.Graph this relationship for T between 0 and 300.d.The dead weight loss of a tax is the area of a triangle between supply and demand curves.Recalling that the area of the triangle is 1/2xbasexheight,solve for the dead weight loss as afunction of T.Graph this relationship for T between 0 and 300.e.The government now levies a tax of $200per unit on this good.Is this a good policy?Why or why not?Can you propose a better policy?
The government of a State has been experiencing an increase in number of obesity cases. Research suggests an increase in consumption of a particular fast food item is responsible for high number of obesity cases. As a result, the government of that State is considering an imposition of $1 tax. Monthly demand and supply for this good are QD=21-1P and QS= -1+1P respectively. Draw the demand and Supply curve for fast food before the tax is imposed. Calculate the equilibrium price and quantity, consumer and producer surplus, and label them on the graph. Calculate the price elasticity of demand and supply for fast food. If the State government imposes a tax, who will bear the most of the burden of the tax? Suppose that the State government finally imposes a $1 tax on fast food. What will the new equilibrium price and quantity? Include the tax on your graph. Calculate the consumer and producer surplus and label them on the graph. Is there any deadweight loss resulting from the tax on that…