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CHAPTER 6.
EXCISE TAXES
Problems on Excise Taxes and Competitive Markets.
Problem 6.1.You observe that a buyer pays $11·40 to a seller for one box of choco-lates.You know that there is an excise tax of $2·30 per box levied on boxes ofchocolates. What price did the seller receive for the box of chocolates?Problem 6.2.In a market for lumber the price currently paid by buyers is $3 perfoot.The price received by the sellers of lumber is $2·50 per foot.The market issubject to an excise tax levied at what rate?Problem 6.3.A market for milk is subject to an excise tax levied at a rate of $2per 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?Problem 6.4.Compact discs are sold in a competitive market. When buyers paypbfor each disc the total number of discs demanded isQD= 50-pb. When sellersreceivepsfor 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?(iii)The Government imposes a $5 per disc excise tax. What now is the relationship