Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 6.2, Problem 2QQ
To determine
The impact of tax.
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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?
The government is in need of tax revenue and has narrowed down the choice of markets to tax to two: cigarettes or t-shirts. The markets are summarised below.
Cigarettes
Demand: P = 100 – 4Q
Supply: P = Q
T-shirts
Demand: P = 35 – ½Q
Supply: P = 5 + ½Q
Graph the two markets and calculate the equilibrium price and quantity.
If the government implemented a $5 tax on each market, how much tax revenue could each market generate?
If you were an economic advisor, which market would you suggest taxing and why?
Suppose that the government imposes a tax on cigarettes, use the diagram below to answer the questions. D is the demand curve before tax, S is the supply curve before tax and ST is the supply curve after the tax. (a) For the market for cigarettes with the tax, calculate
(I) the tax
(ii) price paid by consumers
(iii) price recieved by producers
(iv) quantity of cigarettes sold
Chapter 6 Solutions
Essentials of Economics (MindTap Course List)
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- 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_forwardSuppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held constant. In which market will the tax have a larger deadweight loss? Market A Market B The deadweight loss will be the same in both markets. There is not enough information to answer the question.arrow_forwardThe following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive. Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay Price Sellers Receive (Bottles of wine) (Dollars per bottle) (Dollars per bottle) Before Tax After Tax Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Tax Burden Elasticity (Dollars per bottle) Buyers Sellers The burden of the tax falls more heavily on the ___ elastic side of the market.arrow_forward
- Can you explain How a tax shifts the demand curve and the supply curve? I don’t know what the correct answer to this isarrow_forwardHow does a tax on a good affect the price paid by buyers, price receive by sellers, and the quantity sold?arrow_forwardThe following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive. Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. The burden of the tax falls more heavily on the ___ elastic side of the market.arrow_forward
- 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?arrow_forwardWhen the Government of USA decides to impose a tax on noodles, what impact will this have? * A.Raises both the price buyers pay and the price sellers receive. B.Lowers both the price buyers pay and the price sellers receive. C.Raises the price buyers pay and lowers the price sellers receive. D.Lowers the price buyers pay and raises the price sellers receivearrow_forwardSuppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (In fact, both the federal and state governments impose beer taxes of some sort.)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?arrow_forward
- Suppose that the government imposes a tax on cigarettes. Use the diagram below to answer the questions. D is the demand curve before tax, S is the supply curve before tax and ST is the supply curve after tax. For the market for cigarettes without the tax, indicate: (i) Price paid by consumers (ii) Price paid by producers (iii) Quantity of cigarettes sold (iv) Buyer's reservation price (v) Seller's reservation pricearrow_forwardWhichofthefollowingstatementsis(are)correct? (x) A payroll tax is a tax on the wages that a firm pays its workers and in the United States the payroll tax is also referred to as a social insurance tax. (y) The payroll tax differs from the individual income tax in the U.S. because the payroll tax is primarily earmarked to pay for Social Security and Medicare. (z) Taxes on specific goods such as cigarettes, gasoline, alcoholic beverages and tires are called excise taxes. (x), (y) and (z) (x) and (y) only (x) and (z) only (y) and (z) only (x) onlyarrow_forward
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