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1) The demand curve for burritos is given by the equation P=12-2Q and the supply for burritos is given by P=3+3Q
1) The demand curve for burritos is given by the equation P=12-2Q and the supply for burritos is given by P=3+3Q. Suppose that the government imposes a tax of $1 on each burrito. The tax is collected from the seller. How much revenue is raised by the government? * $20 $1.8 $2.2 $18
2) The demand curve for burritos is given by the equation P= 12-2Q and the supply for burritos is given by P=2+3Q. Suppose that the government imposes a tax of $1 on each burrito. The tax is collected from the seller. Calculate the tax incidence on the buyers * 0.5 0.2 0.4 0.25
3) Suppose the market demand curve for pizza can be expressed as Qd=100-2P+3Pb, where Qd is the quantity of Pizza demanded, P is the price of a pizza, and Pb is the price of burrito. If the price of pizza is $3 and Pb is $5. What is the price elasticity of demand for pizza? * -0.20 -0.5 -0.27 -0.05
4)Suppose the market demand curve for pizza can be expressed as Qd=100-2P+3Pb, where Qd is the quantity of Pizza demanded, P is the price of a pizza, and Pb is the price of burrito. If the price of pizza is $3 and Pb is $5. What is the cross price elasticity of the demand for pizza with respect to the price of burrito? * 0.04 0.13 0.68 0.76
5)The demand curve for burritos is given by the equation P= 12-2Q and the supply for burritos is given by P=3+3Qs. Suppose that the government imposes a tax of $1 on each burrito. The tax is collected from the seller. What is the equilibrium Price and Quantity after the tax? * P*= $3; Q*= 20 burritos P*= $2; Q*= 18 burritos P*=$8.4; Q*= 1.8 burritos P*= $7.2; Q*=2.2 burritos
Expert Solution
1) Tax reduce quantity traded from 1.8 to 1.6. Thus tax revenue collected by seller is Quantity traded after tax * Tax amount = 1.6 * 1 = 1.6
At a tax of $1, tax will be shared among both buyers as well as sellers which will fall in the ratio of (demand curve touching price axis - equilibrium price) to (equilibrium price - supply curve touching price axis) which is (12 - 8.4) / (8.4 - 3) = 3.6 / 5.4
· Burden on consumers would be [3.6 / (3.6 + 5.4)] of total tax which is 40% of $1 which is $0.4
3) Qd=100-2P+3Pb
P = 3
Pb = 5
Qd = 100 - 2 * 3 + 3 * 5 = 111
Elasticity of demand: (dQd / dP) * (P / Q)
(dQd / dP) = -2
Elasticity of demand: -2 * (3 / 111) = -0.05
4) Cross Elasticity of demand: (dQd / dPb) * (Pb / Q)
(dQd / dP) = 3
Elasticity of demand: 3 * (5 / 111) = 0.13
5) Equilibrium price after tax is $8.8 while equilibrium quantity is 1.6
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