Check Your Understanding

  1. Question

    Using the tables in Check Your Understanding Questions 1 and 2 in Module 49, find the equilibrium price and quantity in the market for cheese-stuffed jalapeño peppers. What is the total surplus in the equilibrium in this market, and how much of it does each consumer and producer receive?

  2. Question

    Consider the market for butter, shown in the accompanying figure. The government imposes an excise tax of $0.30 per pound of butter. What is the price paid by consumers post-tax? What is the price received by producers post-tax? What is the quantity of butter sold? How is the incidence of the tax allocated between consumers and producers? Show this on the figure.

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  3. Question

    The accompanying table shows five consumers’ willingness to pay for one can of diet soda each as well as five producers’ costs of selling one can of diet soda each. Each consumer buys at most one can of soda; each producer sells at most one can of soda. The government asks your advice about the effects of an excise tax of $0.40 per can of diet soda. Assume that there are no administrative costs from the tax.

    Consumer Willingness to Pay Producer Cost
    Ana $0.70 Zhang $0.10
    Bernice 0.60 Yves 0.20
    Chizuko 0.50 Xavier 0.30
    Dagmar 0.40 Walter 0.40
    Ella 0.30 Vern 0.50

    1. Without the excise tax, what is the equilibrium price and the equilibrium quantity of soda?

    2. The excise tax raises the price paid by consumers post-tax to $0.60 and lowers the price received by producers post-tax to $0.20. With the excise tax, what is the quantity of soda sold?

    3. Without the excise tax, how much individual consumer surplus does each of the consumers gain? How much individual consumer surplus does each consumer gain with the tax? How much total consumer surplus is lost as a result of the tax?

    4. Without the excise tax, how much individual producer surplus does each of the producers gain? How much individual producer surplus does each producer gain with the tax? How much total producer surplus is lost as a result of the tax?

    5. How much government revenue does the excise tax create?

    6. What is the deadweight loss from the imposition of this excise tax?