2. Suppose a local government votes to impose an exercise tax of $1.00 per bottle on the sales of bottled water. Assume that all bottles
2. Suppose a local government votes to impose an exercise tax of $1.00 per bottle on the sales of bottled water. Assume that all bottles are identical, and residents cannot shop elsewhere. Before the tax, the equilibrium price and quantity are $1.00 and 2000 bottles per day. After the tax is imposed, market equilibrium adjusts to a price of 1.80 and a quantity of 1400 bottles per day. a) Draw the supply-anddemand diagram before and after the tax is imposed. (1.5 marks) b) How much revenue from the tax does the local government collect each day? (1 mark) c) After imposition of the tax, what is the after-tax price received by the sellers? What is the total after-tax revenue received per day by the sellers? (lmark) (1) Who bears most of the burden of this exercise tax, and why? (1.5 mark)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance