2shar asked:
Demand curve for cigarettes is given by Qd = 2000 – 200P
Supply curve for cigarettes is given by Qs = 200P , where P is the price per pack.
The government now imposes a tax of $2 per pack. Find the quantity after the tax, the price paid by consumers and price received by producers.
Please explain how you derive new demand curve after the tax is imposed.
Rhonda
Demand curve for cigarettes is given by Qd = 2000 – 200P
Supply curve for cigarettes is given by Qs = 200P , where P is the price per pack.
The government now imposes a tax of $2 per pack. Find the quantity after the tax, the price paid by consumers and price received by producers.
Please explain how you derive new demand curve after the tax is imposed.
Rhonda
Amber
Pd=Ps+Tax=Ps+2
Ps=Pd-Tax=Pd-2
Qd=2’000-200Pd
Qs=200Ps=200(Pd-2) = 200Pd-400
Qd=Qs
2’000-200Pd=200Pd-400
2’400=400Pd
Pd=2’400/400=6
Ps=6-2=4
Qs=Qd=200Ps= 200×4=800
Demand curve doesn’t changes actually – there vertical spread emerges between demand and supply, and this spread size is tax.