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Consider the market for beef discussed in this chapter (Tables 1 through 3 and Figures 1 and 8). Suppose that the government decides to fight cholesterol by levying a tax of 50 cents per pound on sales of beef. Follow these steps to analyze the effects of the tax: Construct the new supply schedule (to replace Table 2) that relates quantity supplied to the price that consumers pay. Graph the new supply curve constructed in Test Yourself Question 7(a) on the supply-demand diagram depicted in Figure 7. Does the tax succeed in its goal of reducing the consumption of beef? Is the price rise greater than, equal to, or less than the 50-cent tax? Who actually pays the tax, consumers or producers? (This may be a good question to discuss in class.)

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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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Chapter
Section
BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 4, Problem 8TY
Textbook Problem
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Consider the market for beef discussed in this chapter (Tables 1 through 3 and Figures 1 and 8). Suppose that the government decides to fight cholesterol by levying a tax of 50 cents per pound on sales of beef. Follow these steps to analyze the effects of the tax:

  1. Construct the new supply schedule (to replace Table 2) that relates quantity supplied to the price that consumers pay.
  2. Graph the new supply curve constructed in Test Yourself Question 7(a) on the supply-demand diagram depicted in Figure 7.
  3. Does the tax succeed in its goal of reducing the consumption of beef?
  4. Is the price rise greater than, equal to, or less than the 50-cent tax?
  5. Who actually pays the tax, consumers or producers? (This may be a good question to discuss in class.)

To determine

(a)

To discuss the effect of tax levied on the sale of beef.

Explanation of Solution

Government has decided to fight cholesterol by levying a tax of 50 cents per pound on sales of beef.

Construct a supply schedule that relates quantity supplied to the price paid by consumer as follows:

Price paid by consumer
(dollars per pound)
Price received by producers of beef
(dollars per pound)
Quantity supplied
(Pounds per year)
8.007.5090
7.907.4080
7...
To determine

(b)

To discuss the effect of tax levied on sale of beef.

To determine

(c)

To discuss the effect of tax levied on the sale of beef.

To determine

(d)

To discuss the effect of tax levied on the sale of beef.

To determine

(e)

To discuss the effect of tax levied on the sale of beef.

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