Problem 1: Excise Tax Burden (6 points) In Question 10 of Connect Assignment 5, we look at the market for a good when an

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Problem 1 Excise Tax Burden 6 Points In Question 10 Of Connect Assignment 5 We Look At The Market For A Good When An 1 (17.8 KiB) Viewed 50 times

Problem 1 Excise Tax Burden 6 Points In Question 10 Of Connect Assignment 5 We Look At The Market For A Good When An 2 (29.83 KiB) Viewed 50 times

Problem 1: Excise Tax Burden (6 points) In Question 10 of Connect Assignment 5, we look at the market for a good when an excise tax of $1.50 per unit was levied on sellers. We're asked to draw the after-tax supply curve, plot the after-tax prices paid by consumers and received by sellers, and calculate DWL and total surplus. We're also asked to use the Connect graching tool to draw consumer surplus, producer surplus, government revenue and deadweight loss after the tax Here's the graph with the after-tax supply curve drawn Price (3) 530- 4104 400- 100- 3:50. 230- 1:00- 8:00 Quantity (millions) a. As a quick recap, buyers will pay $ si b. The government receives S per unit with the tax Sellers receive S million units of this good are sold after the tax is imposed million in revenue as a result of this tax per unit

Now, we're going to look at how to determine which party bears the burden of the tax. Since the relative burden depends on the price elasticities of supply and demand, we'll need to calculate PED and PES To calculate the elasticities, we need to determine the percent change in quantity and price for each party. The quantities will be the same for both parties, but the prices ore different. For PED, we'll need to use the new price paid by buyers. For PES, we'll need to use the new price received by sellers. In other words, as you plug numbers into the formula, Q1 and P1 will be the pre-tax equilibrium price and quantities. Q2 will be the new quantity sold after the tax, which you identified in porta. For P2, we will need to use the new buyer price for our PED calculation, and the new seller price for the PES calculation (both of which we found in part al The price elasticity of demand between these two points (pre- and post-taxis d. The price elasticity of supply between these two points is e. Based on the elasticities calculated above, we know that Select [Round to 2 decimal places, and use the midpoint method. Don't forget the negative sig Apal, round to 2 decimal places, and use the midpoint method] will bear the greater burden of the tax because Select Note: We can check our answers here. Take a look at the graph and note how much the buyers price increased after the tax, and compare that with how much the sellers price decreased. We can see that both parties have had to sacrifice and have lost surplus, but which party has to pay a greater proportion of the $1.50 per unit!