Let the following attached graph represent the market for diamond rings. a) ( 1

Question

Let the following attached graph represent the market for diamond rings. a) ( 1 pts) What is the equilibrium price and quantity of diamond rings. Suppose the government levies a $6,000 luxury tax on diamond rings to be paid by producers. b) (3 pts) Show and describe how the luxury tax affects the graph above. c) (2 pts) What is the new equilibrium price and quantity. d) (4 pts)Who bears the economic incidence of the tax? That is, what portion of the tax burden falls on consumers and what portion of the tax burden falls on producers? Give actual dollar amount here

Explanation / Answer

A. The equilibrium price is where supply and demand meet, with a price of $14000 and quantity of 65000. B. Although the luxury tax is paid by the producers it will be passed on to the customers. They do this by shifting the pink supply curve to the left, where the price is $6000 higher at $20000. C. You would show this by shifting it to the left at the same slope but an equilibrium point at $20000 and quantity of 5000. D. The economic incidence of the tax is ultimately paid by the consumer, making them pay $6000 more

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.