to raise funds at providing more support for public schools,a state government has just imposed a unit excise tax equal to $4 for each monthly unit of telephone services sold by each telephone company operating in the state. The diagram below depicts the position of the demand and supply curves for telephone services before the unit excise tax was imposed. Use this diagram to determine the position of the new market supply curve now that the tax was imposed.

a. Does imposing the $4-per-month unit excise tax cause the market price of telephone services to rise by $4 per month?why or why not?

b. What potion of the $4-per-month unit excise tax is paid by consumers? What portion is paid by providers of telephone services?

a. Imposing the $4-per-month unit excise tax does not necessarily cause the market price of telephone services to rise by $4 per month. The impact on the market price depends on the relative elasticity of demand and supply.

If demand is relatively elastic (i.e., responsive to changes in price), consumers may be less willing to purchase telephone services at a higher price. In this case, suppliers may have to absorb part of the tax burden by lowering their prices to maintain demand.

If supply is relatively elastic (i.e., responsive to changes in price), suppliers may be able to adjust their production and pricing levels more easily to offset the tax burden. This could prevent or minimize an increase in the market price.

Therefore, the position of the new market supply curve will depend on the specific elasticity of demand and supply. If demand is more elastic than supply, the market price may not rise by the full $4 per month.

b. The portion of the $4-per-month unit excise tax that is paid by consumers and the portion paid by providers of telephone services depends on the relative elasticity of demand and supply.

If demand is relatively inelastic (i.e., unresponsive to changes in price), consumers may continue to purchase telephone services even at a higher price caused by the tax. In this case, consumers will bear a larger portion of the tax burden.

If supply is relatively inelastic, suppliers may not be able to easily adjust their production and pricing levels to avoid the tax burden. In this case, providers of telephone services will bear a larger portion of the tax burden.

Therefore, the exact distribution of the tax burden between consumers and providers of telephone services will depend on the elasticity of demand and supply.

To determine the position of the new market supply curve after the unit excise tax was imposed, we need to understand how the tax affects both consumers and producers in the market.

a. Imposing a $4-per-month unit excise tax does not necessarily cause the market price of telephone services to rise by the exact amount of the tax. The impact on the market price depends on the elasticity of demand and supply for telephone services.

- If the demand for telephone services is relatively elastic (responsive to price changes), then consumers may be less willing to bear the entire burden of the tax. In this scenario, the market price may not rise by the full $4. Instead, some of the tax burden will be absorbed by the telephone companies in the form of reduced profits.
- However, if the demand for telephone services is relatively inelastic (not very responsive to price changes), then consumers may absorb a larger portion of the tax burden. This means that the market price may increase by approximately $4, as consumers are still willing to pay a higher price for the services.

Therefore, the impact on the market price depends on the specific characteristics of demand elasticity.

b. The portion of the $4-per-month unit excise tax paid by consumers and providers of telephone services depends on the elasticity of demand and supply.

- If the demand for telephone services is relatively elastic, consumers will have more flexibility to adjust their consumption in response to price changes. In this case, providers of telephone services may bear a larger portion of the tax burden as they would need to reduce prices to maintain demand.
- Conversely, if the demand for telephone services is relatively inelastic, consumers will have limited alternatives and may be less sensitive to price changes. As a result, they would bear a larger portion of the tax burden, and providers of telephone services may be able to pass on the tax to consumers by increasing prices.

To determine the exact proportion paid by consumers and providers, information about the elasticity of demand and supply is needed. Without this information, it is difficult to give a definitive answer.