SIMON FRASER ECON290 Tut9 answer

# SIMON FRASER ECON290 Tut9 answer - burden There is a fixed...

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Economics 290: Canadian Microeconomic Policy Tutorial #9 1. The annual demand for cigarette is given by Q D = 50,000 – 30,000P, where P is the price, and Q D is the quantity demand. The supply of cigarette is given by Q S = 20,000P. a. Solve for the equilibrium quantity and price of cigarette. b. Now suppose the government is planning to impose a \$1 tax on each unit of cigarette sold in the market, and sellers are legally liable for the tax. Calculate the excess burden of the tax, the amount of tax revenue collected, and the incidence of tax between buyers and sellers. c. How will your answer to part (b) change if consumers are legally liable for the tax? a. Q* = 20,000. P* = 1 b. Excess burden of the tax: 6000 Tax revenue: 8000, consumers pay 3200, producers pay 4800. c. The answer to the previous part will be identical if the consumers are liable for the tax. 2. Why would a 10-percent national land tax on rents be likely to have zero excess
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Unformatted text preview: burden? There is a fixed supply of land (The supply of land is perfectly inelastic). A 10% land tax has no effect on the equilibrium quantity. It has no excess burden. 3. Explain why the excess burden of a lump-sum tax will always be zero. A lump-sum tax does not affect the marginal cost of the firm or the marginal benefit of the consumer. Market equilibrium quantity remains unchanged. Therefore the excess burden is zero. 4. The annual demand for liquor is given by Q D = 50 – 20P, where P is the price, and Q D is the quantity demanded. The supply of liquor is given by Q S = 30P. Suppose that a \$1 per litre tax is levied on the price of liquor received by sellers. Calculate the excess burden of the tax, the amount of tax revenue collected, and the incidence of tax between producers and consumers. Excess burden = 6. Tax revenue = 18. Producers pay 7.2, and consumers pay 10.8...
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## This note was uploaded on 04/15/2010 for the course ECON 290 taught by Professor J liu during the Spring '06 term at Simon Fraser.

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