Unit 4 Government Intervention

Indirect Tax Calculations

Given the following Supply/Demand functions for the market for
cigarettes:
Qd = 60 3P
Qs = -20 + 5P
1. Calculate the price and quantity equilibrium.
2. Calculate the Quantity intercept for the Demand function.
3. Calculate the Price intercept for the Demand function.
4. Calculate the Price intercept for the Supply function.
5. On your graph, based on the numbers calculated, make your
scales for your Price and Quantity axis.
6. Place each point on the graph and draw the Supply and Demand
curve.
7. Calculate the Consumer and Producer surplus.
The government decides to place a $4 per unit tax on packs of
cigarettes.
1. State the new Supply function.
2. Calculate the new price and quantity equilibrium.
3. Calculate the new Price intercept for the Supply function.
4. Draw your new Supply curve.
5. State the price the Consumer pays.
6. Calculate the Price the Producer receives.
7. Calculate Consumer Burden when the tax is implemented.
8. Calculate the Producer Burden when the tax is implemented.
9. Who is burdened more from the implementation of the tax?
10.
Calculate the amount of revenue gained by the
government.

Unit 4 Government Intervention

Indirect Tax Calculations
11.

Calculate the Total Welfare Loss.

12.
Calculate the Consumer and Producer Surplus after the tax
is implemented.