1. dia - en.kgt.bme.hu

1. dia - en.kgt.bme.hu

Exercises for Topics 2-3 Micro- and macroeconomic Exercise 1: Tax Incidence In the market for cigarettes, the demand curve can be described by the equation , while the supply curve is . The government introduces a specific tax of 10$/unit on cigarettes, which is collected from the producers. a) Calculate the pre-tax equilibrium price and quantity and the consumer and producer surpluses! b) How would these change after the tax is introduced? Calculate the post-tax price and quantity traded! c) Calculate the tax revenue and the post-tax consumer and producer surpluses & the deadweight loss! d) Now suppose that the tax is collected from the consumers instead of the producers. Calculate the (new) post-tax price and quantity traded! Exercise 1: Tax Incidence Pre-tax Equilibrium Price and Quantity In the market for cigarettes, the demand curve can be described by the equation , while the supply curve is . The government introduces a specific tax of 10$/unit on cigarettes, which is collected from the producers. a) Calculate the pre-tax equilibrium price and120 quantity and the consumer and producer surpluses 110 100 0 ( ) =1 00 90 80 = 70 =1012,5=

60 50 ; 45 (100 55 ) 2 = 40 45 ( 55 10 ) 2 30 0 ( )=1 0+ 20 10 0 0 15 30 45 60 0 , 0 75 90 105 120 Exercise 1: Tax Incidence Post-Tax Price and Quantity Traded b) How would these change after the tax is introduced? Calculate the post-tax price and quantity traded

120 110 100 90 80 t = 10 70 (market price) (revenue/unit) 60 50 0 ( ) =1 00 40 30 ; 0 ( )=1 0+ 20 10 0 0 10 20 30 40 50 60

0 , 0 , 1 70 80 90 100 110 120 Exercise 1: Tax Incidence Welfare implications c) Calculate the tax revenue and the post-tax consumer and producer surpluses & the deadweight loss 120 110 100 = =25 2 90 80 = 70 =800= 60 ; 50 Tax Revenue: 30 = 40

10 10 20 30 40 50 60 40 ( 50 10 ) 2 0 ( ) =1 00 0 , 0 , 1 0 ( )=1 0+ 20 0 0 40 (100 60 ) 2 70 80 90 100 110 120 Exercise 1: Tax Incidence Tax Collected from the Consumers d) Now suppose that the tax is collected from the consumers instead of the producers. Calculate the (new) post-tax price and quantity traded 120 110

100 90 80 t = 10 70 60 ; (cost for consumers) 50 0 ( ) =1 00 40 30 0 ( )=1 0+ 20 10 0 0 10 20 30 40 50 60 0 , 0 , 1 70 80 90 100 110 120

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