# D for part d answer this set of questions based upon

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d) For part (d), answer this set of questions based upon this new tax and the demand and supply curves you have been given in this problem. 1.How does this excise tax affect the supply curve for ice cream producers in Madison? Explain your answersin words as well as in an equation. 2.Then, calculate the new equilibrium price and quantity in July for this ice cream market.3.Then, calculate the new equilibrium price and quantity in October for this ice cream market. Answers:1.The imposition of the excise tax on producers effectively increases the costs of production for the ice creamproducers since they now must also include paying the government an excise tax of \$15 per unit of ice cream they produce. We can model this in two different ways: as done in class, this excise tax will shift the supply curve up so that the new y-intercept of the supply curve with the tax will now be the old y-intercept plus 15 (this “plus 15” reflects the idea that the producers now have a new cost that they must cover). Thus,if the supply curve was Q = 2000 + 20P, then we could rewrite the supply curve in slope intercept form as P= (1/20)Q – 100. Therefore the new supply curve that includes the tax would be P = (1/20)Q – 85.Alternatively, you could take the existent supply curve in July written in x intercept form and view the tax as effectively decreasing the amount per unit that the producer receives by 15. Thus, instead of P in this original supply curve, the tax results in the new price with the tax being “P – 15”. If, we plug that into the original supply curve equation this is what we get:Q = 2000 + 20(P – 15)Q = 2000 + 20P – 300Q = 1700 + 20P, the new supply curve in JULY written in x intercept form. Let’s check that this new supply equation is the same as we found in the first method: that is, is P = (1/20)Q– 85 the same as Q = 1700 + 20P?20P = Q – 1700P = (1/20)Q – 1700/20P = (1/20)Q – 85Yes, these two approaches give us the same new supply equation with the excise tax. 2.In July the relevant demand equation is Q = 14000 – 10P and the relevant supply equation is Q = 1700 + 20P (see explanation in the answer to #1 of part (d)). Solving for equilibrium with these two equations we get: 14000 – 10P = 1700 + 20P30P = 12300P in July = \$410 per unit of ice creamQ = 1700 + 20(410)Q in July = 9900 units 3.In October the relevant demand equation is Q = 7000 – 30P and the relevant supply equation is Q = 1700 + 20P (see explanation in the answer to #1 of part (d)). Solving for equilibrium with these two equations we get: 7000 – 30P = 1700 + 20P2
50P = 5300P in October = \$106 per unit of ice creamQ = 7000 – 30(106)Q in October = 3820 units
e) Calculate the consumers’ tax burden ratio in July and in October given your answers in (d) and then analyze the answers you get for these two calculations by filling out the table provided and then writing a verbal explanation of the difference you find with regard to the two consumers’ tax burden ratios. Your explanation should include the impact of demand and supply elasticities on these calculations. The tax burden ratio can be found by using the following equation:Consumers’ tax burden ratio = (consumers’ tax incidence)/(total tax revenue)