Answer to Question #283491 in Microeconomics for jesjes

Question

Consider the following policies, each of which aimed at reducing violent crime by reducing the use of guns. Illustrate each of these proposed policies in a supply-and-demand diagram of the gun market.

a)a tax on gun buyers

b)a tax on gun sellers

c) a price floor on guns

d) a tax on ammunition

Answer 1

Solution:

a.). A tax on gun buyers:

A tax on gun buyers will shift the demand curve for guns to the left, reducing the quantity sold to Q2 and raising the price to consumers (from P1 to P2), and lowering the price that gun producers get from P1 to P2-tax.

This is depicted by the below graph:

 

b.). A tax on gun sellers:

A tax on gun sellers will shift the supply curve for guns to the left, reducing the quantity sold and raising the price to consumers, and lowering the price that gun producers get.

This is depicted by the below graph:

 

c.). A price floor on guns:

A price floor on guns above the equilibrium price, will reduce the quantity of guns bought but lead to a surplus of guns since producers will be producing Q³ guns and people will be buying only Q².

This is depicted by the below graph:

 

d.). A tax on ammunition:

A tax on ammunition will shift the demand for guns to the left due to a decrease in demand. That’s because guns and ammunition are complementary goods, and when the price of one goes up, the demand for the complement falls and vice versa.

This is depicted by the below graph: