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CHAPTER 6.
EXCISE TAXES
Answers to Problems on Excise Taxes and Competitive Markets.
Answer to Problem 6.1.You observe that a buyer pays $11·40 to a seller for onebox of chocolates. You know that there is an excise tax of $2·30 per box levied onboxes of chocolates. What price did the seller receive for the box of chocolates?
Answer to Problem 6.2.In a market for lumber the price currently paid by buyersis $3 per foot.The price received by the sellers of lumber is $2·50 per foot.Themarket is subject to an excise tax levied at what rate?
Answer to Problem 6.3.A market for milk is subject to an excise tax levied at arate of $2 per gallon. At present the price that a buyer must pay for each gallon is$6·40.(i)What is the price received by the sellers?
(ii)At the price currently faced by buyers the quantity of milk demanded is 2000gallons while the quantity of milk that is supplied at the price received by sellers is1600 gallons. What will happen to the values of these two prices?
Answer to Problem 6.4.Compact discs are sold in a competitive market. Whenbuyers paypbfor each disc the total number of discs demanded isQD= 50-pb. Whensellers receivepsfor each disc the total number of discs supplied isQS=-10 + 4ps.(i)If the market is not subject to an excise tax, then what is the relationship betweenpbandps?
(ii)If the market is not subject to an excise tax, then what price will buyers pay perdisc, what price will sellers receive per disc and how many discs will be traded?