The free response question is due no later than 10PM on 10/13. This question should take you approximately 10-15 minutes to prepare and upload your solution. Respond to the following prompt, and upload your response as a PDF. Write your name at the top of your answer. You may hand write your responses as long as your response is legible. Make sure to include a supply and demand diagram and a written explanation of your diagram. Your grade will be determined by the both the correctness and quality of your response. Market Analysis with an Excise Tax The state of Colorado is planning to levy a $2.00 per MWh (megawatt hour) tax on the buyers of coal-generated electricity. The average price of coal-generated electricity before the implementation of the tax is $12.00 per MWh. Market analysts predict that the average price of coal generated electricity will increase to $13.50 per MWh after the tax. A. Use the supply and demand model to illustrate and explain how the proposed tax will impact the market for coal- generated electricity. Clearly show in your diagram and explain in words the impact on price and quantity of electricity as well as the revenue raised and any deadweight loss caused by the tax. B. Discuss how the economic burden of the tax (tax incidence) is shared between buyers and sellers. Specifically, what share of the tax is paid for by buyers and what share is paid for by sellers? C. What do your findings in part B tell you about the price elasticity of demand for coal-generated elasticity compared to the price elasticity of supply? Explain. The free response question is due no later than 10PM on 10/13. This question should take you approximately 10-15 minutes to prepare and upload your solution. Respond to the following prompt, and upload your response as a PDF. Write your name at the top of your answer. You may hand write your responses as long as your response is legible. Make sure to include a supply and demand diagram and a written explanation of your diagram. Your grade will be determined by the both the correctness and quality of your response. Market Analysis with an Excise Tax The state of Colorado is planning to levy a $2.00 per MWh (megawatt hour) tax on the buyers of coal-generated electricity. The average price of coal-generated electricity before the implementation of the tax is $12.00 per MWh. Market analysts predict that the average price of coal generated electricity will increase to $13.50 per MWh after the tax. A. Use the supply and demand model to illustrate and explain how the proposed tax will impact the market for coal- generated electricity. Clearly show in your diagram and explain in words the impact on price and quantity of electricity as well as the revenue raised and any deadweight loss caused by the tax. B. Discuss how the economic burden of the tax (tax incidence) is shared between buyers and sellers. Specifically, what share of the tax is paid for by buyers and what share is paid for by sellers? C. What do your findings in part B tell you about the price elasticity of demand for coal-generated elasticity compared to the price elasticity of supply? Explain
