question archive There are 10,000 identical individuals in the market of commodity X, each with a demand function given by Qdx = 12 - 2Px, and 1,000 identical producers of commodity X, each with a function given by Qsx = 20Px, where Qdx is an individual's quantity demanded, Qsx is a single producer's quantity supplied, and Px is the price of the commodity
There are 10,000 identical individuals in the market of commodity X, each with a demand function given by Qdx = 12 - 2Px, and 1,000 identical producers of commodity X, each with a function given by Qsx = 20Px, where Qdx is an individual's quantity demanded, Qsx is a single producer's quantity supplied, and Px is the price of the commodity
Subject:MarketingPrice:2.88 Bought3
There are 10,000 identical individuals in the market of commodity X, each with a demand function given by Qdx = 12 - 2Px, and 1,000 identical producers of commodity X, each with a function given by Qsx = 20Px, where Qdx is an individual's quantity demanded, Qsx is a single producer's quantity supplied, and Px is the price of the commodity.
Suppose that from the condition of equilibrium above, the government decides to collect an excise tax of $2 per unit produced, from each of the 1000 identical producers of commodity X
a. What effect does this have on the supply of commodity X?
b. What is the effect on the equilibrium price and quantity of commodity X?
c. Who actually pays the tax?
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When we solve for the equilibrium level, the price will be $3 and the corresponding quantity will be 60000 units. If the government decides to collect an excise tax of $2 per unit, then:
a_
This will shift the supply of commodity X leftwards because producers need to pay a tax to the government. So, they decrease their supply at each level of price.
b
Since the supply curve has shifted leftwards, the equilibrium price that a buyer receives declines while the equilibrium price that a consumer pays rises. The quantity of good X also declines.
c_
While the tax was initially levied on producers, but the incidence of tax fell on both consumers and producers. Producers pay a tax in the form of lower prices they receive for their goods and services. On the other hand, consumers pay the tax in the form of higher prices they pay for the purchase of goods and services.
