11.) Assume the government imposes a $0.75 excise tax on the sale of every 2 lit
ID: 1137764 • Letter: 1
Question
11.) Assume the government imposes a $0.75 excise tax on the sale of every 2 liter bottle of soda. The tax is to be paid by the producers of soda. The figure below shows the annual market for 2 liter bottles of soda before and after the tax is imposed.
Instructions: Round your answers for price to two decimal places. Enter your answers for quantity as a whole number.
a. Before the tax is imposed, the equilibrium price is $___ per bottle and the equilibrium quantity is ___ billion bottles.
b. After the excise tax is imposed, consumers pay a price of $___ per bottle.
c. After the excise tax is imposed, the price (or amount) producers keep after the tax is paid is $___ per bottle.
d. After the tax is imposed, the equilibrium quantity is ___ billion bottles.
e. The government is able to collect $___ billion of tax revenue from the tax.
Market for Soda 4.0 3.5 3.0 E 2.5 F 2.0 15 1.0 . 0.5 0 1 2 345 6 78 Quantity (billions of bottles)Explanation / Answer
Answer:
a. Before the tax is imposed, the equilibrium price is $1.0 per bottle and the equilibrium quantity is 10 billion bottles.
b. After the excise tax is imposed, consumers pay a price of $1.5 per bottle.(s1 and D intersection)
c. After the excise tax is imposed, the price (amount) producers keep after the tax is paid is $1.3 per bottle.
d. After the tax is imposed, the equilibrium quantity is 12 billion bottles.(intersection of (S1 and D)
e. The government is able to collect $1.2(1.5-1.3)* 12 = 2.4 billion of tax revenue from the tax.(difference between what buyers pay and what producers receive multiplied by eq quantity
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