In 1996, Florida voted on (and rejected) a 1¢-perpound excise tax on refined cane sugar in the Florida Everglades Agricultural Area. Swinton and Thomas

(2001) used linear supply and demand curves

(based on elasticities estimated by Marks, 1993) to calculate the incidence from this tax given that the market is competitive. Their inverse demand curve was p = 1.787

- 0.0004641Q, and their inverse supply curve was p = -0.4896 + 0.00020165Q.

Calculate the incidence of the tax that falls on consumers (Chapter 2) for a competitive market. If producers joined together to form a monopoly, and the supply curve is actually the monopoly’s marginal cost curve, what is the incidence of the tax?

(Hint: The incidence that falls on consumers is the difference between the equilibrium price with and without the tax divided by the tax. Show that the incidence is 70% in a competitive market and 41%

with a monopoly. See Solved Problem 11.3.) M