Suppose that the original before-tax demand curve is P = 98-2Qd and that supply is P = 2+2Qs. Now suppose a $3 unit tax is imposed on consumers.
Suppose that the original before-tax demand curve is P = 98-2Qd and that supply is P = 2+2Qs. Now suppose a $3 unit tax is imposed on consumers.
Use supply and demand diagrams to show the effect of a $3-unit tax imposed on the demand side. What is the before‑tax equilibrium price and quantity? What is the after‑tax equilibrium quantity? (10 points)
Calculate the economic incidence incurred by producers and the economic incidence incurred by consumers. (10 points)
How much tax revenue is raised? (5 points)
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