Computation on Excise Tax (Math Problem Sample)
In Question 4, the excise tax is levied on the seller, resulting in a new supply equation. The equilibrium price and quantity are determined by equating the new demand and supply equations. However, the price paid by the consumer (after subtracting the tax) is not explicitly provided, so the correct answer is that it "Can't be determined."
In Question 7, the same excise tax is considered, but this time the burden of the tax borne by the consumer is analyzed. The new equilibrium price is compared to the pre-tax equilibrium price, and it is determined that the consumer bears the entire tax burden. Therefore, the amount of the tax borne by the consumer is $2, as stated in option (a).
In the final explanation, the same excise tax is discussed, and the new supply equation is provided. The correct answer is option (a), which presents the new supply equation as Qs = 0.5P + 7.
Overall, the explanations clarify the impact of an excise tax on supply, equilibrium price, and the burden of the tax borne by the consumer.
When an excise tax is levied on the seller, the new supply equation becomes:
Qs = 5 + 0.5(P - 2) = 3 + 0.5P
To find the new equilibrium price and quantity, we need to equate the new demand and supply equations:
20 - 1.5P = 3 + 0.5P
Simplifying and solving for P, we get:
2P = 17 P = 8.5
Therefore, the new equilibrium price with the tax is $8.5 per unit. The price paid by the consumer is the amount after subtracting the tax from the equilibrium price. So,
Price paid by the consumer = Equilibrium price - Excise tax
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