If the government decides to impose a tax of 20 cents per litre on petrol, illustrate...

If the government decides to impose a tax of 20 cents per litre on petrol, illustrate the impact of the tax on market equilibrium price, and discuss whether the outcome is efficient by demonstrating the change of consumer’s and producer’s surplus as a result of the tax.

•Draw a demand and supply model, with demand curve.

•Show the shift of S as a result of 20 cent tax.

•Identify new equilibrium.

•Mark the price paid by consumer and received by the seller.

•Demonstrate change of consumer and producer’s surplus, tax revenue, and deadweight loss.

Solutions

Expert Solution

Sol :

Equilibrium is the point where demand and supply are equal to each other.

When tax of $0.20 cents is imposed by the government , Supply curve of the product will shift to the left because of the decrease in supply due to increase in taxes.

When supply curve shift from S to S1, a new equilibrium is established where E1 (Equilibrium is established) .

Price charged corresponding to E1 is Pc (Price Paid by consumer) and Pp (price paid by the producer) .

Deadweigh loss is the loss of trade because of imposing of taxes.

And , consumer surplus is the area above the price level and below the demand curve . Whereas producer surplus is the area below the price and above the supply curve .

Consumer surplus is reduced and producer surplus is also reduced because of taxes .

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

•If the government decides to impose a tax of 20 cents per litre on petrol, draw...

•If the government decides to impose a tax of 20 cents per litre on petrol, draw a graph the impact of the tax on market equilibrium price, and discuss whether the outcome is efficient by demonstrating the change of consumer’s and producer’s surplus as a result of the tax. •Draw a demand and supply model, with demand curve. •Show the shift of S as a result of 20 cent tax. •Identify new equilibrium. •Mark the price paid by consumer and...

If the government decides to impose a tax of 20 cents per liter on petrol, illustrate the impact of the tax on market equilibrium price

If the government decides to impose a tax of 20 cents per liter on petrol, illustrate the impact of the tax on market equilibrium price, and discuss whether the outcome is efficient by demonstrating the change of consumer’s and producer’s surplus as a result of tax . - Draw a demand and supply model with demand curve - Show the shift of S as a result of 20 cent tax. - Mark the price paid by consumer and received by...

Suppose that in the market for coffee, the government decides to impose a tax on the...

Suppose that in the market for coffee, the government decides to impose a tax on the consumption of coffee. Illustrate the equilibrium market for coffee reflecting the new tax. On your graph, label the new price that consumers pay as Pc On your graph, label the new price that sellers receive as Ps On your graph, shade in the area representing the tax revenue received by the government and label it (TR). On your graph, shade in the area of...

32. Suppose that in the market for coffee, the government decides to impose a tax on...

32. Suppose that in the market for coffee, the government decides to impose a tax on the consumption of coffee. a. Illustrate the equilibrium market for coffee reflecting the new tax. b. On your graph, label the new price that consumers pay as Pc c. On your graph, label the new price that sellers receive as Ps d. On your graph, shade in the area representing the tax revenue received by the government and label it (TR). e. On your...

Assume that the government decides to impose a tax on sellers of foods that are high...

Assume that the government decides to impose a tax on sellers of foods that are high in sugar content. a) Using a demand and supply diagram (half an A4 page), demonstrate and explain how such a tax that is imposed on sellers in fact creates a burden on consumers as well. Indicate the government revenue on your diagram. b) What is price elasticity of demand and how is it calculated? Briefly explain using diagrams, how price elasticity of demand will...

The government decided to impose a tax of NIS 10 per unit on the manufacturers of...

The government decided to impose a tax of NIS 10 per unit on the manufacturers of clothing goods, which until now were exempt from taxes. a. In a graph analyze and present the effect of this step taken by the government on quantity produced of clothing goods, on the price paid by consumers and on the price received by the manufacturer. In a graph (diagram) show the government receipts and the deadweight loss. b. Will your answer to (a) above...

Suppose that the government of China decided to impose a per unit tax on the suppliers...

Suppose that the government of China decided to impose a per unit tax on the suppliers of salt. a. Using a supply and demand model, show and explain the impact that the per-unit tax had on the equilibrium price and quantity of salt. b. Using the diagram created for your answer to (a), show and explain what effect the per unit tax had on consumer surplus, producer surplus and deadweight loss. c. List three reasons a government may impose a...

The government impose a 20%tax on the sale of milk. Given that Sam has an income...

The government impose a 20%tax on the sale of milk. Given that Sam has an income of 100 pennies, the price of milk is 5 pennies, the price of bread is 4 pennies, and Sam's utility function is U=(M)2/3(B)1/3. The tax on milk is a burden on Sam, how much of a burden is it? calculate the increase in income require to compensate Sam for the imposition of the tax. How does that compare to the money raised from the...

If the government announces today that a tax increase of 80 cents per pack of cigarettes...

If the government announces today that a tax increase of 80 cents per pack of cigarettes is to take place in two weeks, what would you expect to happen today to the current market for cigarettes?

In the US, the federal government charges a tax of 18.3 cents per gallon of gasoline...

In the US, the federal government charges a tax of 18.3 cents per gallon of gasoline sold. What type of tax is this? Explain what effect this tax will have on the market for gasoline. Illustrate your answer with a diagram. Explain why this tax will cause the price of gasoline to rise, but by less than 18.3 cents per gallon. Is taxing gasoline likely to cause a significant decrease in the amount of gasoline sold? Explain

Subjects