uestions 34-36 The government is considering a new $10 tax on tobacco products t
ID: 1173434 • Letter: U
Question
uestions 34-36 The government is considering a new $10 tax on tobacco products to reduce their consump- Without the tobacco tax, the annual demand for tobacco products is 900,000-30,000P and the annual supply is 60,000P The sellers of tobacco products have the responsibility for collecting and remitting the to- bacco tax to the government. Q-quantity; P-price 34. What is the market price (closest second decimal) of tobacco products with the $10 tax? a. $10.00 b. 12.00 C. 16.67 d. 30.00 35. What percentage (closest first decimal) of the $10 tax is paid by tobacco product vendors? a. 50.0% b. 60.0 ?. 66.7 d. 100.0 7IP a ge Class find more resources at oneclass.com Class find more resources at oneclass.com 36. What is the government revenue from the $10 tax on tobacco products? a. $3,999,000 b. 4,000,000 c. 5,500,000 d. 6,000,000Explanation / Answer
34. Demand equation: Q = 900,000 - 30,000P
Supply equation: Q = 60,000P
After $10 tax, supply equation changes,
Q = 60,000(P-10)
Solving the two equations we get, Supply = Demand ( Equilibrium condition)
900,000 - 30,000P = 60,000(P-10)
900,000 - 30,000P = 60,000P- 600,000
1,500,000 = 90,000P
P = $16.67
Answer is c.
35. Initial level of market price was, i.e before tax was
900,000 - 30,000P = 60,000P
900,000 = 90,000P
P = $10
This means that sellers are recieving 16.67 - 10 = $6.67 after paying taxes.
Initially, they were receiving $10, now they are getting $6.67 only, this shows they paid 10 - 6.67 = $3.33 as the tax and the rest was passed onto customers i.e 6.67
They are paying (3.33/10)*100 = 33.3%
And tobacco consumers are paying 66.7%
Option c is the answer.
36. Government revenue collected is, Quantity sold * Tax
Finding quantity, Put P = $16.67 in the demand equation,
Q = 900,000 - 30,000(16.67)
= 399900
So tax collected is, 3,999,000
Option a is the answer.
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