Answer to Question #259964 in Microeconomics for XYZ

Question

Suppose that the demand curve is Qd = 120 - 6p and the supply curve is Qs = 18p. Calculate the effects of a specific tax of t=2 per unit on the equilibrium, government tax revenue,consumer surplus, producer surplus,welfare and deadweight loss?

Answer 1

               The levy's impact on the supply-demand steady state is to push the portion to a position where the value of the levy equals the difference between the before-tax need and the before-tax provision. A tax raises the rate a buyer spends by a smaller amount than the tax. Consequently, the seller's fee drops, but not by as much as the tax.

               The tax rate is determined by the source and requirement price efficiency. Purchases endure the brunt of the tax cost when output is more flexible than wants. When demand is much more stretchy than supply, the tax burden falls mainly on the producers. The more malleable demand and supply are, the higher the tax income.