Answer :
Let's break down each part of the question and provide detailed explanations step-by-step.
### c. Tax Impact on Equilibrium
When an excise tax of [tex]$6 is imposed on a product that is initially in equilibrium at a price of $[/tex]10, we need to determine the new equilibrium price paid by consumers, the price received by producers, and the number of units sold. This involves shifting the supply curve upward by the amount of the tax.
1. Equilibrium Price Paid by Consumers:
- Let the initial equilibrium price be [tex]\( P = 10 \)[/tex].
- When an excise tax of [tex]\( T = 6 \)[/tex] is imposed, the new equilibrium price paid by consumers ([tex]\( P_c \)[/tex]) will increase.
- The new equilibrium price paid by the consumers ([tex]\( P_c \)[/tex]) is found by adjusting the supply curve due to the tax.
The supply curve shifts up by the tax amount, and the new equilibrium price paid by consumers will be higher than the original equilibrium price.
2. Price Received by Producers:
- The price received by producers ([tex]\( P_p \)[/tex]) will be the new consumer price minus the tax.
- If [tex]\( P_c \)[/tex] is the new consumer price, then [tex]\( P_p = P_c - T \)[/tex].
3. Number of Units Sold:
- The quantity sold ([tex]\( Q \)[/tex]) will be less than the original equilibrium quantity due to the tax increasing the price paid by consumers, and this typically decreases demand.
### d. Consumer and Producer Surplus
1. Consumer Surplus:
- Consumer surplus is the area below the demand curve and above the price level up to the quantity sold.
- Initially, if the equilibrium price is [tex]$10, and assuming the demand curve is linear, the initial consumer surplus can be calculated using the formula for the area of a triangle: \[ CS = \frac{1}{2} \times \text{Base} \times \text{Height} \] - After the tax is introduced, the new consumer surplus will decrease because consumers are now paying a higher price. 2. Producer Surplus: - Producer surplus is the area above the supply curve and below the price level received by producers. - Initially, if the equilibrium price is $[/tex]10, the initial producer surplus can be calculated similarly.
- After the tax is introduced, the new producer surplus will decrease because producers are receiving a lower price.
### e. Price Ceiling of [tex]$2 To determine if a price ceiling of $[/tex]2 is beneficial to consumers, we need to evaluate the impact on supply and demand.
- A price ceiling set below the equilibrium price typically results in a shortage because quantity demanded exceeds quantity supplied.
- As the equilibrium price without the tax is [tex]$10, a price ceiling of $[/tex]2 is significantly below this equilibrium price.
- This will lead to excess demand (shortage) where consumers want to purchase more at this low price, but producers are not willing to supply enough.
Given this analysis:
### Answers
c.
- Equilibrium price paid by consumers: Higher than [tex]$10. - Price received by producers: Lower than $[/tex]10. (Specifically, [tex]\( P_p = P_c - 6 \)[/tex]).
- Number of units sold: Less than the initial equilibrium quantity.
d. Calculation requires additional parameters for exact values:
- Consumer surplus: Decreased from initial surplus.
- Producer surplus: Decreased from initial surplus.
e. False: A price ceiling of $2 would likely not be beneficial for consumers overall due to resulting shortages.
Remember, the exact values for consumer and producer surplus post-tax require demand and supply functions or curves.
### c. Tax Impact on Equilibrium
When an excise tax of [tex]$6 is imposed on a product that is initially in equilibrium at a price of $[/tex]10, we need to determine the new equilibrium price paid by consumers, the price received by producers, and the number of units sold. This involves shifting the supply curve upward by the amount of the tax.
1. Equilibrium Price Paid by Consumers:
- Let the initial equilibrium price be [tex]\( P = 10 \)[/tex].
- When an excise tax of [tex]\( T = 6 \)[/tex] is imposed, the new equilibrium price paid by consumers ([tex]\( P_c \)[/tex]) will increase.
- The new equilibrium price paid by the consumers ([tex]\( P_c \)[/tex]) is found by adjusting the supply curve due to the tax.
The supply curve shifts up by the tax amount, and the new equilibrium price paid by consumers will be higher than the original equilibrium price.
2. Price Received by Producers:
- The price received by producers ([tex]\( P_p \)[/tex]) will be the new consumer price minus the tax.
- If [tex]\( P_c \)[/tex] is the new consumer price, then [tex]\( P_p = P_c - T \)[/tex].
3. Number of Units Sold:
- The quantity sold ([tex]\( Q \)[/tex]) will be less than the original equilibrium quantity due to the tax increasing the price paid by consumers, and this typically decreases demand.
### d. Consumer and Producer Surplus
1. Consumer Surplus:
- Consumer surplus is the area below the demand curve and above the price level up to the quantity sold.
- Initially, if the equilibrium price is [tex]$10, and assuming the demand curve is linear, the initial consumer surplus can be calculated using the formula for the area of a triangle: \[ CS = \frac{1}{2} \times \text{Base} \times \text{Height} \] - After the tax is introduced, the new consumer surplus will decrease because consumers are now paying a higher price. 2. Producer Surplus: - Producer surplus is the area above the supply curve and below the price level received by producers. - Initially, if the equilibrium price is $[/tex]10, the initial producer surplus can be calculated similarly.
- After the tax is introduced, the new producer surplus will decrease because producers are receiving a lower price.
### e. Price Ceiling of [tex]$2 To determine if a price ceiling of $[/tex]2 is beneficial to consumers, we need to evaluate the impact on supply and demand.
- A price ceiling set below the equilibrium price typically results in a shortage because quantity demanded exceeds quantity supplied.
- As the equilibrium price without the tax is [tex]$10, a price ceiling of $[/tex]2 is significantly below this equilibrium price.
- This will lead to excess demand (shortage) where consumers want to purchase more at this low price, but producers are not willing to supply enough.
Given this analysis:
### Answers
c.
- Equilibrium price paid by consumers: Higher than [tex]$10. - Price received by producers: Lower than $[/tex]10. (Specifically, [tex]\( P_p = P_c - 6 \)[/tex]).
- Number of units sold: Less than the initial equilibrium quantity.
d. Calculation requires additional parameters for exact values:
- Consumer surplus: Decreased from initial surplus.
- Producer surplus: Decreased from initial surplus.
e. False: A price ceiling of $2 would likely not be beneficial for consumers overall due to resulting shortages.
Remember, the exact values for consumer and producer surplus post-tax require demand and supply functions or curves.
