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3) Consider the market for study drugs at Case Western. The equilibrium price and quantities start out as P=$5 and Q=5 pills. The dean of
3) Consider the market for study drugs at Case Western. The equilibrium price and quantities start out as P=$5 and Q=5 pills. The dean of the college isn't happy about the drug use so he imposes a tax on the drugs. The diagram below shows one estimate of the impact of the tax. (a) How big is the tax? How much revenue does it raise? What price do buyers pay after the tax is implemented? What share of the tax is paid by buyers and what share is paid for by the sellers? (b) A consultant is hired to estimate the impact of the tax and he comes to very different conclusions. He believes the final price consumers will pay is $5.50 and that the quantity will be Q=4.5. Label the diagram below with his estimates and explain why he believes the tax will not push prices up as much and have less impact on total sales
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