Question

Figure 6-13 PRICE Demand 160 80 105 120 QUANTITY Refer to Figure 6-13. What is the amount of the tax per unit? ОООО

Answer 1

1. imposition of tax shifts the supply curve to the left from S1 to S2.

Initial equilibrium quantity =120 (at the intersection of S1 and demand curve)

After tax, the equilibrium quantity = 105 (at the intersection of S2 and demand curve)

Consumer pays a price for 105 units after tax = 12.

Producer receive a price for 105 units after tax = 8.

Amount of tax = Consumer pays price (after tax) - Producer receive price (after tax)

Amount of tax = 12 - 8

Amount of tax = 4

The amount of the tax per unit is $4

Answer: Option (D)

2. A minimum wage is an example of price floor. It implies the minimum wage the employer must have to pay their employees. It is binding if it is set above the equilibrium wage.

Workers with high skills and much experience not affected by the minimum wage.

Answer: Option (B).

3. Law of supply says that there is an positive relationship between price and quantity supplied of goods, keeping other things constant.

It means a rise in price will increase the quantity supplied of good.

At a price of $10, quantity supplied is 100.

If price increase to $20, then quantity supplied will be greater than 100 at price of $20.

Hence, Q1 could be 150.

Answer: Option (B)