Post by: llesku on Nov 23, 2022
The graph shows the demand (D) and supply (S) in the market for sugar, where P represents the price for a pound of sugar and Q represents thousands of pounds sold.
Assume that P1=$2.75, P2=$3.05, P3=$5.00, Q1=15, and Q2=46. Suppose the government decides to levy a tax on sugar that shifts the supply curve to Stax. What is the per-unit tax? What is the tax incidence for consumers? For producers?
◦ $2.25, $0.30, $1.95
◦ $5.00, $5.00, $2.75
◦ $5.00, $2.75, $5.00
◦ $2.25, $1.95, $0.30
Post by: char00char on Nov 23, 2022
The per-unit tax is the vertical difference between the supply curve (S) and the supply curve with the tax (Stax).
Per-unit tax = P3 - P1 = 5.00 - 2.75 = $2.25
Before the tax, market equilibrium occurs where supply (S) equals demand (D), at a price of P2 =$3.05 and a quantity of Q2 = 46.
After the tax, market equilibrium occurs where supply with the tax (Stax) equals demand (D), at a price of P3 = $5.00 and a quantity of Q1 = 15.
The tax incidence for consumers is the difference in what the consumer pays after the tax and what the consumer paid before the tax.
Tax incidence for consumers = P3 - P2 = 5.00 - 3.05 = $1.95
The tax incidence for producers is the difference in what the producer received before the tax and what the producer receives after the tax.
After the tax, the producer receives P3 - tax = 5.00 - 2.25 = $2.75
Tax incidence for producers = P2 - 2.75 = 3.05 - 2.75 = 0.30