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Homework answers / question archive / Suppose the demand for a product is given by P = 30 - 2Q
Suppose the demand for a product is given by P = 30 - 2Q. Also, the supply is given by P = 5 + 3Q. If a $5 per-unit excise tax is levied on the buyers of a good, after the tax, the total amount of tax paid by the consumers is
Computation of Total Amount of Tax Paid by the Consumers:
Equilibrium is at Qd = Qs
30-2Q = 5+3Q
Q = $5
P = 30-2*$5 = $20
New Demand Curve after Tax
P=25-2Q
Equating with Supply Curve
25-2Q = 5+3Q
Q=4
Using Old Demand Curve
P = 30-2*4 = $22
The tax paid by buyer per unit = 22-20 = $2
Total Tax Amount = 2*4=$8
