The handgun sells in a specialized market, so we\'ll assume there are sufficient
ID: 1091707 • Letter: T
Question
The handgun sells in a specialized market, so we'll assume there are sufficient buyers and sellers so that the demand curve and supply curve are smooth, straight lines. The vertical intercept for the demand curve is at 560 and the vertical intercept for the supply curve is at -40 (note that this is NEGATIVE 40). Initially there is no tax, and the gun sells for $80, with 40 units sold.
The government, concerned about how many people own and produce guns, puts a hefty tax on the market in some amount that makes the price paid by buyers rise to $320 and the price received by sellers fall to $20. With the tax, only 20 guns are sold.
What is the amount of the tax per unit (per gun sold)?
Explanation / Answer
15%
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