Problem_Set_6_Excise_Taxes

Problem_Set_6_Excise_Taxes - 126 CHAPTER 6 EXCISE TAXES...

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126 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 of chocolates. 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 per foot. The price received by the sellers of lumber is $2 · 50 per foot. The market is subject 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 $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 2000 gallons while the quantity of milk that is supplied at the price received by sellers is 1600 gallons. What will happen to the values of these two prices? Problem 6.4. Compact discs are sold in a competitive market. When buyers pay p b for each disc the total number of discs demanded is Q D = 50 - p b . When sellers receive p s for each disc the total number of discs supplied is Q S = - 10 + 4 p s . (i) If the market is not subject to an excise tax, then what is the relationship between p b and p s ? (ii) If the market is not subject to an excise tax, then what price will buyers pay per disc, what price will sellers receive per disc and how many discs will be traded?
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