a). Draw the pre-tax demand and supply curves in Figure 1. Label them D0 and S0. (4 points)- 2 points for each curve
b). Suppose there is no tax on orange sales. (4 points - 1 point for each row)
The equilibrium price is ______.
The equilibrium quantity is ______.
Buyers are spending a total of _$_____x______ = _$_____ on oranges.
Sellers are receiving a total of _$_____ x ______ = $_______ from selling oranges.
c). Suppose the government introduces a tax of $1.50 per pound of oranges.
Fill in the new tax adjusted supply schedule in the last column of Table 1. (4 points)
Place the new tax adjusted supply curve in the graph and label it S1 (3 points)
Then answer the following questions:
(1 point for each question - total of 8 points)
(1 point)The new equilibrium quantity is __________.
(1 point)The new price paid by the buyers is ___________.
(1 point)The new price received by sellers is __________.
(1 point)Buyers would spend a total of _$________x_________ = $________ on oranges.
(1 point) Sellers would receive a total of _$__________x__________ = _$___________ from selling oranges.
(1 point) The government revenue from this tax would be $______x______ = ______.
(1 point) The consumers' total burden would be _________x__________ = ______.
(1 point) The producers' total burden would be ______x______ = ______ .
What area is indicated by what area in the graph (color the area indicating the deadweight loss with RED). (3 points)
(Note: Convince yourself that using the approach indicated by the schedule above gives you the same answers for b) and c) as the graphical approach.)
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