EBK MICROECONOMICS
2nd Edition
ISBN: 9780134458496
Author: List
Publisher: VST
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 7P
(a)
To determine
The table with the help of the alphabet given in the diagram.
(b)
To determine
(c)
To determine
Reason behind the creation of deadweight loss, when subsidy is provided.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Currently, the market price for a gallon of ice cream is $5.
a. Draw a supply-and-demand diagram of the market for ice cream WITHOUT the tax. On your
diagram, indicate the price paid by consumers, the price received by producers, and the
quantity of ice cream sold. NOTE: YOU DO NOT NEED TO CALCULATE ANY SPECIFIC VALUES.
SIMPLY INDICATE THESE ITEMS ON YOUR DIAGRAM (WHERE THEY WOULD BE IN RELATION
TO EACH OTHER).
b. What is the difference between the price paid by consumers and received by producers?
Now, suppose the federal government requires buyers of ice cream to pay a $2 tax on each
gallon of ice cream sold.
C. Draw a supply-and-demand diagram of the market for ice cream with the tax. On your
diagram, indicate the tax per gallon of ice cream, the price paid by consumers, the price
received by producers, and the quantity of ice cream sold. NOTE: YOU DO NOT NEED TO
CALCULATE ANY SPECIFIC VALUES. SIMPLY INDICATE THESE ITEMS ON YOUR DIAGRAM
(WHERE THEY WOULD BE IN RELATION TO EACH…
Consider the following market supply and demand information for cigarettes:
Price ($) Demand for Cigarettes (in million packs per week)
$2 12
3 10
4 8
5 6
6 4
7 2
and the supply is 8,000,000 cigarette packs per week.
Now suppose that the government mandates a $1 excise tax per pack on the buyers of cigarettes.
Who bears the economic incidence (tax burden) of the excise tax?…
1. What is the equilibrium price and quantity?
2. Suppose the government imposes a tax of $1.00 on each water bottle. Complete the column showing quantity
supplied after the tax. (Hint: at a price of $8.00 the quantity supplied was 36000. With the tax, this quantity
supplied will be supplied only at a price of $9.00, so the Quantity supplied with a tax at 9.00 is 36000) You
continue, so at $8.50, the producer only gets 7.50. so is only willing to offer 32000 units.
Qd
Price 000s)
$9.00 20
8.50
8.00
7.50
7.00
6.50
6.00
24
28
32
36
40
44
Qs
(000s)
44
40
38
32
28
24
20
Quantity supplied
after tax Qs(t)
(000s)
36
32
Price
28
24
3. On your graph, plot the new supply curve after the imposition of the tax (in a different colour, to differentiate the
supply curve).
4. What will be the new equilibrium price and quantity?
5. How much of the tax is passed onto the consumers in the form of price increase, and how much is paid by the
producers? Indicate the producer and consumer burden on your…
Knowledge Booster
Similar questions
- Draw a supply-and-demand diagram of the market for liquor without the tax. Show the price paid by consumers, the price received by producers, and the quantity of liquor sold. What is the difference between the price paid by consumers and the price received by producers? Now draw a supply-and-demand diagram for the liquor market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of liquor sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of liquor sold increased or decreased?arrow_forwardSubsidies, unlike taxes, tend to increase the quantities of goods and/or services traded and consumers tend to pay a lower price for the good. From this perspective, the benefits for consumers are evident, while the effects for producers are not so conclusive. In this context, what would be the effect(s) that subsidies have on producers?I. Subsidies positively affect the quantity supplied, but the producer must pay the subsidy.II. Market prices increase.III. Producers increase the quantity offered, but the price they charge is the one that corresponds according to their supply function.Select one:a. II and IIIb. III onlyc. I, II and IIId. I and IIIe. I onlyarrow_forwardMiller wants to discourage the energy drink market with a $2 tax on energy drinks (that on average cost $2.50) Cruz thinks the tax is too high, so Miller makes the tax $1. draw a graph with the demand curve, supply curve, equilibrium price/quantity, tax price, tax incidence, tax revenue, and dead weight loss. First, Locate the equilibrium price and quantity. Which letters represent producer and consumer surplus before the tax? Which letters after the tax? Did the surplus increase or decrease?arrow_forward
- Miller wants to discourage the energy drink market with a $2 tax on energy drinks (that on average cost $2.50) Cruz thinks the tax is too high, so Miller makes the tax $1. draw a graph with the demand curve, supply curve, equilibrium price/quantity, tax price, tax incidence, tax revenue, and dead weight loss. Locate the tax revenue and indicate which letters show that on the graph. Who pays more of the tax- consumers or producers? How does the graph show this?arrow_forwardSuppose that a city government introduces a $0.50 excise (commodity) tax on consumers of bottles of soda to improve the health of its citizens. Manipulate the accompanying graph to demonstrate the impact of the tax on the market for soda What would be the new equilibrium quantity if instead of taxing consumers, the city taxed producers? 2 0 thousand bottles Price ($/bottle) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 0 1 Market for Bottles of Soda 7 2 3 4 5 6 Quantity (thousands of bottles) D 8 9 8 10arrow_forwardOn a graph, show the effect of a per unit tax on BUYERS of cigarettes. (This requires you to think about the shape of the demand curve for cigarettes. You can assume a sort of neutral supply curve. Indicate the change in price and quantity from the tax. The consumer and producer surplus after the tax, the tax incidence on buyers and sellers and the deadweight loss. Who pays more of this tax? [Note: In the book they talk about the effect of cigarette taxes on OTHER states. That's not what I'm talking about here. Just tell me about the market on which the tax is imposed.]arrow_forward
- Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss? The greater are the price elasticities of supply and demand, the greater is the deadweight loss. The greater is the price elasticity of supply and the smaller is the price elasticity of demand, the greater is the deadweight loss. The smaller are the decreases in quantity demanded and quantity supplied, the greater the deadweight loss. The smaller is the wedge between the effective price to sellers and the effective price to buyers, the greater is the deadweight loss.arrow_forwardQuestion 37 Refer to Figure 2-1. What is the deadweight loss from this tax? You can answer this in one (or more) of the following ways: Paste a picture or drawing of where to visually find the deadweight loss on the graph. Describe in words where on a graph you would find the deadweight loss (ex: in relation to supply curve, demand curve, above or below or between certain price or quantities) Describe conceptually what the deadweight loss is in this context.arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Principles of Macroeconomics (MindTap Course List)EconomicsISBN:9781305971509Author:N. Gregory MankiwPublisher:Cengage Learning
Principles of MicroeconomicsEconomicsISBN:9781305156050Author:N. Gregory MankiwPublisher:Cengage Learning
Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:9781305971509
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Microeconomics
Economics
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning