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August 29, 2015

Homework Help: Principles of microeconomics

Posted by Stacie on Saturday, November 29, 2008 at 6:29pm.

Thos question comes from Gregory Mankiw Principles of Microeconomics fourth edition. I am not sure how to do this problem. Can you help me please.
The government places a tax on the purchase of socks.

A. Illustrate the effect of the tax on equilibrium price and quantity in the sock market. ID the following areas both before and after the imposition of the tax: total spending by consumers, total revenue form producers, and government tax revenue.
B. Does the price received by producers rise or fall? Can you tell whether total spending by consumers rises or falls? Explain carefully. (Hint: Think about elasticity.) If total consumer spending falls, does consumer surplus rise? Explain.
C. Does the price paid by consumers rise or fall? Can you tell whether total spending by consumers rises or falls? Explain carefully. (Hint: Think about elasticity.) If total consumer spending falls, does consumer surplus rise? Explain.

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