Question

Suppose the supply of a good is given by the equation Q^S = 80P - 80, and the demand for the good is given by the equation Q^D= 280 – 40P,  where quantity (Q) is measured in millions of units and price (P) is measured in dollars per unit. 

The government decides to levy an excise tax of $3.00 per unit on the good, to be paid by the seller. 

Calculate the value of each of the following, before the tax and after the tax, to complete the table that follows: 

.1. The equilibrium quantity produced 

2. The equilibrium price consumers pay for the good 

3. The price received by sellers 

Given the information you calculated in the preceding table, the tax incidence on consumers is on producers is _______ per unit of the good, and the tax incident on producers is _______ per unit of the good. 

The government receives _______  in tax revenue from levying an excise tax of $3.00 per unit on this good. 

True or False: The equilibrium quantity would have been different if the tax had been levied on buyers instead.

Answer 1