Question 1

An excise tax imposed on the sale of beer has an effect on the market.

a)With the help of a graph, explain the effect of this tax on the price and quantity demand as well as quantity supply of beer. (6)

b)With the help of a graph, explain the effect of this tax on the consumer and producer surplus. (4)

Question 2

Suppose the supply and demand for a pack of cigarretes are given by Q_s = 40 + 3P and Q_d = 80 - P, respectively. Where P is the price per pack; Q_s is the quantity supplied and Q_d is quantity demanded. Suppose that the government has imposes a sales tax of N$2 per pack.

a)Calculate the equilibrium price and quantity of cigarettes before the tax is impose. (2)

b)How will the tax imposed on buyers affect the equilibrium price and quantity of cigarettes? Show your work and illustrate your answers on a fully labelled graph. (8)

c)How will the tax imposed on Sellers affect the equilibrium price and quantity of cigarettes? Show your work and illustrate your answers on a fully labelled graph. (8)

d)If a tax is imposed on buyers, who bears more of the tax burden? Show your work and explain why. (6)

e)How much revenue is raised by the tax? What share is paid by consumers and what share is paid by producers?(6)

Question 3

Sometimes people think that putting a price ceiling on petrol would be a good idea. However, this may cause more problems because it would hide the true situation.

Suppose that a price ceiling is set below the equilibrium price of petrol.

a)How does the price ceiling influence the quantity of petrol supplied and the quantity demanded? (3)

b)How does the price ceiling influence the maximum price that someone is willing to pay on the black market? (3)

c)Draw a graph to illustrate the effect of a price ceiling set below the equilibrium price in the market for petrol. (4)