Question 61 pts Suppose the demand for a product is given by P = 60 –2Q. Also, t

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Question 61 pts

Suppose the demand for a product is given by P = 60 –2Q. Also, the supply is given by P = 10 + 3Q. If a $10 per-unit excise tax is levied on the buyers of a good, producer surplus is equal to

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Question 71 pts

Suppose the demand for a product is given by P = 40 – 4Q. Also, the supply is given by P = 10 + Q. If a $10 per-unit excise tax is levied on the buyers of a good, government revenue is equal to

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Question 81 pts

Suppose the demand for a product is given by P = 100 – 2Q. Also, the supply is given by P = 20 + 6Q. If an $8 per-unit excise tax is levied on the buyers of a good, after the tax, the total amount of tax paid by the consumers is

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Question 91 pts

Suppose the demand for a product is given by P = 40 – 4Q. Also, the supply is given by P = 10 + Q. If a $10 per-unit excise tax is levied on the buyers of a good, after the tax, the total amount of tax paid by the producers is

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Question 101 pts

Suppose the demand for a product is given by P = 50 –Q. Also, the supply is given by P = 10 + 3Q. If a $12 per-unit excise tax is levied on the buyers of a good, after the tax, the total quantity of the good sold is

Explanation / Answer

61)

3. $64

New Demand after tax = P = 50 - 2Q

30 - P/2 = P/3 - 20/3

5P/6 = 110/3

P = (110/3)*(6/5) = 44

Q = 8

Price received by seller = 36

Producer Surplus = 1/2*(36-10)*8 = $64

71)

Suppose the Demand function is P=40-4Q.

Supply Function is P=10+Q

By equating two equations we get 40-4Q = 10+Q

40-10 = Q+4Q

5Q = 30

Q = 6

Then P = 40-4Q

= 40-4*6

=16

This means when price is $16, quantity is 6units.The equilibrium point is (6,16)

Now the consumer pays p dollars for the product,but the supplier receives only p-10 dollars,since $10 goes to the govt.

The demand function remains as it is: P = 40-4Q.

But the supply function changes.

Replacing p-10 in supply function : P-10 = 10+Q

So P = 20+Q

Now equating demand & supply function we get : 40-4Q = 20+Q

40-20 = Q+4Q

5Q = 20

Q = 4

The new price will be 40-4(4) = $24

The new equilibrium point will be at (4,24).

The original price was $16 & it went up to $24 as a result of tax.The price is increased by $8 but the tax is $10.This means the producer pays $2 of the tax,while passing $8 of the tax to the consumer.The consumer pays $24.Out of which $10 is tax & producer keeps $14.

The govt. collects $10 per unit & the quantity at the new equilibrium point is Q=4.

Thus, tax revenue is price * quantity = ($10 per unit)(4units) = $40.

The govt. revenue is equal to $40.

So the answer is none of these.

81)

91)

Find Q,

40-4Q=10+Q

40-10=Q+4Q

5Q=30

Q=30/5

Q=6

Hence, tax to paid is Q*$10, 6*10= $60.

101)

Impsoition of tax on buyers will change the demand function as follows:

New demand function: P+12 = 50-Q or P = 38-Q and old supply function : P = 10 + 3Q

Now equating new demand with old supply function:

38-Q = 10+3Q

4Q = 28

Q = 7 units

and P = 10+3(7) = $31.

Total quantity supplied is 7 units.

Option A is correct.

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