Question

Price ($/unit) Supply Demand OL 10 11 12 13 17 Quantity (units) 18. Refer to Figure 1. Suppose a tax of $6 per unit is imposed on sellers in this market. What is the total loss of consumer surplus resulting from this tax? a $18 b. $32 C. $36 d. $48 19. Refer to Figure 1. Suppose a tax of $6 per unit is imposed on sellers in this market. Which is correct? a. Buyers will bear more of the burden of the tax than sellers will. b. Buyers and sellers will share the burden of the tax equally C. Sellers will bear more of the burden of the tax than buyers will d. Any of the above are possible 20. Refer to Figure 1. Suppose a tax of $6 per unit is imposed on sellers in this market. What is the deadweight loss from the tax? a $2 b. $3 C $6 d. $8 21. Refer to Figure 1. Suppose the government increases the tax from $6 per unit to $18 per unit. How does this tax increase affect government revenue and deadweight loss from the tax? a. Government revenue decreases and deadweight loss decreases b. Government revenue decreases and deadweight loss increases Government revenue increases and deadweight loss decreases d. Government revenue increases and deadweight loss increases

Please help with these questions.. thank you.

Answer 1

18

18 option b) 32

Explanation: Because of imposition of $6 tax on seller's market, price per unit will rise from $15(equilibrium price) to $21($15+$6), thus as a result, the equilibrium quantity supplied falls to 5.47.

Consumer surplus fall = quantity supplied fall * $6 = $32. 86( $32 approximately)

Calculation of quantity fall:

From the given diagram, we can see for $23 quantity supplied was 6, therefore for $21, quantity supplied will be (21*6)/23 = 5.47(approximately)

19 option d) Tax can be bear in either way mentioned above.

• Buyer's tax burden>seller's tax burden
• Buyer's tax burden = seller's tax burden
• Buyer's tax burden < seller's tax burden

20 option c) $6

Explanation: If the tax gets increased by $6 in the seller's market, then the dead weight will amount to $6 as deadweight loss= buyer's value - seller's cost (which is 6)

21 option b) Government's revenue decreases and deadweight loss increases.

Explanation: Revenue of the government decreases since tax collection rises from $6 to $18 per unit but on the other hand the quantity supplied falls and hence tax revenue(which is Price * Quantity ) falls as because the reduction is quantity supply is greater than the increase in tax. Deadweight loss also rises because of 'loss gains from trade' increases due to increased taxation by the government.

A very large tax has a very large deadweight loss but because it has reduced the market so much, the tax raises only a small amount of revenue.