Question

need step by step solution to the following this question asap .I have limited time so please do it quickly with detailed explanation

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b) Assume that the demand curve is given by p=20 and the supply curve is given by p=q. Show in a figure how the producer burden and consumer burden are affected by a tax equal to 5 per unit levied on the producers. Explain. c) Assume that the demand curve for a good is given by p=8-q and the supply curve is given by p=q. The government considers imposing a tax on the consumers equal to t for each unit. Derive and show in a figure the produced quantity with and without the tax and the government's tax incomes. How are the tax incomes affected by an increase in the tax rate? Explain.

Answer 1

When demand is more elastic, then a tax raise doesn't impact the consumers much because they shift their consumption away from the good that is being taxed. That is the reason why introduction of tax does not have any impact on the consumers when demand is perfectly elastic (p=20) because the entire burden of the tax is shifted to the producers and the effective price paid by the consumer does not change.

The inverse U relationship between the tax rate and tax revenue is called the Laffer curve, which basically means that increasing tax rate doesn't necessarily increase the tax revenue and that there exists a specific tax rate at which the tax revenue will be maximum. If taxes are increased beyond that rate, incentive for economic activity will fall and thus tax revenue will fall and eventually reduces to zero at 100% tax rate (here, at t=p=8)

Ans. 6) Demand curve: Suppu sure, Tax = 5/ unit p= 20 p= SS (p293 do A - DD (2220) Dead weight loss Producer Surplus P Tax con TO Revenue - 15 20 Süre demand & perfectly elastic, the entire burden of the tax will fall on the produces as the price paid by the consumer doesn't change, but price secured by producer falls by the amount of tax so producer Surplus will fall from area of A AOB to area of DALD. Aseg COED is the tax revenue collected by the gout. Area ADEB is the Deadweight loss as market quantity has fallen from 20 units to 15 units because some

consumets who cou. producers who could earlier supply at pz 20, leave the market with a price fall due to Derivation of figues Q: 22p0 = 20 q = 20 At equilibrium, poz ps. = (p₂ p After tax, ps= pe-5 io, At equilibriums p055=q 20-52q 19215 New Supply curve is s - 529 k+9H c) Demand curre pz 8-q o qa=d-p. supply curve. p = q w a q = pihald х = t/ull- New Demand curve & o todo o prt z 8-q gull a un p 2 (8-t) -q = qd = (8-t) p

UN 09 Without tax, qaz qs * o-p2 p 3 [p*24 Aud [q* = 4 t with tax, ggg 열 (d-t) - p2 p - DD' DD 8 7 7 4 at 8 And, [q+= 87 th= P&tt=8+1 Par = Pg ² + t = 8+ Gout's tax income = tx ot 3) T z 8t-4 dI - £8-2+) = 4-4 for t<4, tax revenue increases with increase in tax rate t. T1 for t>49 tax revenue o falls with increase in t tax rate t. o fortat, tax revenue is maximum (T-8). 4 (Efficient tax gate