Homework_9 - Intermediate Microeconomics Mark Dean Homework...

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Intermediate Microeconomics Mark Dean Homework 9 Due Wednesday, 20th April Question 1 (Quantity Taxes) The government is hoping to raise revenue, and has decided to do so by placing a quantity tax on leisurewear. Demand for leisurewear is given by D ( p ) = a ° bp Where p is the price of leisure wear, while supply is given by S ( p ) = c + dp 1. Before the tax is implemented, what is the equilibrium price for leisurewear? How much leisurewear is traded? What is the Consumer and Producer surplus from the leisurewear industry? (notice that all your answers will depend on the parameters a; b; c; d ) 2. Say that a sales tax t is imposed on leisurewear. Sketch a graph to show what happens to the market/ How does your answer to the above questions change? What is the incidence of taxation? How does the incidence depend on the parameters of the model? 3. How do you your answers to question 2 change if the government instead imposes an excise tax?
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