A study finds that the noise from lawn mowers is harmful; hence, the government
ID: 2439068 • Letter: A
Question
A study finds that the noise from lawn mowers is harmful; hence, the government imposes a $20 tax on the sale of every unit. This amount accurately accounts for the external cost of the noise pollution. Before the corrective tax, basic push mowers regularly sold for $190. After the tax is in place, the market price for basic push mowers rises to $208.
Because of the tax, the number of basic push mowers sold will Increase or Decrease?
The socially optimal price of basic push mowers is $???
The private market price is $???
A firm selling basic push mowers receives $??? after it pays the tax.
Explanation / Answer
1. Because of the tax, the number of basic push mowers sold will Decrease. Since, the price of the basic push mowers has increased becaue the tax, less people will be demanding the highly priced mower thus a fall in sales.
2. The socially optimal price of basic push mowers is $208.
3. The private market price is $190.
4. A firm selling basic push mowers receives $188 after it pays the tax. To calculate what the firm will receive after tax, we need to subtract the new price and the tax amount. Thus, $208 - $20 = the amount the firm will get after paying the tax, i.e., $188
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