Question

the following information applies to the market for a particular items in the absence of aunit excise tax.

($4,50,200)
($5,75,175)
($6,100,150)
($7,125,125)
($8,150,100)
($9,175,75)
a. according to the informaton above, in the absence of a unit excise tax, what is the market price? what is the equilibrium quantity?
b. suppose that the government decides to subject producers of this item to a unit excise tax equal to $2 per unit sold. what is the new market price? what is the new equilibrium quantity?
c. what portion of the tax is paid by producers? what portion of the tax is paid by the consumers

Answer 1

Suppose that the U.S. government decides to charge cola producers a tax. Before the tax, 35 billion cases of cola were sold every year at a price of $6 per case. After the tax, 29 billion cases of cola are sold every year; consumers pay $9 per case, and producers receive $3 per case (after paying the tax).

Answer 2

a. $7, 125 units
b. $8, 100
c. Producers and customer pay equal amounts.