Suppose the demand for a product is given by P = 30 - 2Q

Economics May 02, 2021

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

Expert Solution

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

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