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
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).
a. $7, 125 units
b. $8, 100
c. Producers and customer pay equal amounts.
To determine the market price and equilibrium quantity in the absence of a unit excise tax, we need to analyze the given data. The information is presented in a table format with three columns - price, quantity supplied, and quantity demanded.
a. To find the market price, we look for the point where the quantity supplied equals the quantity demanded, known as the equilibrium point. In the given table, the equilibrium quantity is represented at the row with equal quantities supplied and demanded. In this case, it occurs at a price of $7 and a quantity of 125 units. Therefore, the market price is $7, and the equilibrium quantity is 125 units.
b. Now let's determine the new market price and the new equilibrium quantity after implementing a unit excise tax of $2 per unit sold. The excise tax is a tax levied on producers for each unit sold.
To find the new market price, we need to subtract the tax amount from the original market price. In this case, the original market price was $7, and the tax is $2 per unit. Hence, the new market price will be $7 - $2 = $5.
To calculate the new equilibrium quantity, we need to compare the quantity supplied and demanded at the new market price. Referring to the data table, we can see that at a price of $5, the quantity supplied is 150 units, and the quantity demanded is 100 units. Since the quantity supplied is greater than the quantity demanded, it indicates excess supply or surplus. To achieve the new equilibrium, the quantity supplied must equal the quantity demanded. Therefore, the new equilibrium quantity will be the lower value between the quantity supplied and the quantity demanded, which is 100 units.
c. To determine the portion of the tax paid by producers and consumers, we need to understand the impact of the tax on the market. The excise tax imposed on producers increases their cost of production and thus reduces their willingness to supply the product at various prices.
In this case, the original market price was $7, but after the tax, the new market price decreased to $5. The difference between the original market price and the new market price ($7 - $5 = $2) represents the portion of the tax paid by consumers. Consumers still have to pay the higher price due to the tax, causing an increase in their costs.
The remaining portion of the tax ($2) is paid by the producers. They have to lower their price to accommodate the tax and still attract demand. The tax reduces their revenue per unit sold.
To summarize, consumers pay a portion of the tax through the increased market price, and producers pay the remaining portion of the tax through reduced revenue per unit sold. In this case, consumers pay $2 of the tax, and producers pay the remaining $2.