Suppose the market for rum can be described by the following equations: Demand: P= 10- Q, Supply: P= Q - 4, where P is the price in US dollars per unit and Q is the quantity in thousands of units. Then: 2) suppose the government imposes a tax of $1 per unit to reduce rum consumption and raise government revenues. a) what will be the new equilibrium quantity be? b) what price will the buyer pay? c) what amount per unit will the seller recieve

Suppose the market for rum can be described by the following equations: Demand: P= 10- Q, Supply: P= Q - 4, where P is the price in US dollars per unit and Q is the quantity in thousands of units. Then: 2) suppose the government imposes a tax of $1 per unit to reduce rum consumption and raise government revenues. a) what will be the new equilibrium quantity be? b) what price will the buyer pay? c) what amount per unit will the seller recieve

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter5: Elasticity Of Demand And Supply

Section5.A: Appendix: Price Elasticity And Tax Incidence

Problem 1AQ

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Suppose the market for rum can be described by the following equations: Demand: P= 10- Q, Supply: P= Q - 4, where P is the price in US dollars per unit and Q is the quantity in thousands of units. Then: 3) suppose the government has a change of heart about the importance of rum to the public. the tax is removed and a subsidy of $1 per unit granted to rum producers. a) what will the equlibrium quantity be? b) what price will the buyer pay? c) what amount per unit (including the subsidy) will the seller recieve? d) what will be the total cost to the government?
Suppose the market for rum can be described by the following equations: Demand: P= 10- Q, Supply: P= Q - 4, where P is the price in US dollars per unit and Q is the quantity in thousands of units. Then: 1) a) what is the equilibrium price and quantity?
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