Unit 6 Free Response Questions 1. The use of plastic water bottles creates external costs as the result of plastic production, bottle transportation, litter, and waste disposal. Draw a correctly labeled graph showing how the market will determine the quantity of bottles purchased. On the same graph, show the marginal external cost, the socially optimal quantity of bottles, and the size of a tax that could be implemented to achieve the socially optimal quantity of bottles. 2. Draw a correctly labeled graph of a competitive market in equilibrium. On your graph, illustrate the effect of an excise tax. Indicate the following on your graph: The equilibrium price and quantity without the tax, labeled as P and Q The quantity sold after the tax, labeled as Qt The price paid by consumers, labeled as Pt The price received by producers, labeled as Pp The tax revenue, completely shaded and identified on your graph The deadweight loss, completely shaded and identified on your graph = maoo0 oo 3. Draw a graph for a market where the demand is relatively inelastic, and the supply is relatively elastic. Show the impact of a per-unit excise tax that shifts the supply curve to the left. (Make sure you draw a big graph and a big shift!) On your graph indicate the tax revenue that results from the tax. Also show how the tax is split between the producer and consumer. Who bears the larger burdenthe consumer or the producer? 4. Now draw a graph for a market where the demand is relatively elastic, and the supply is relatively inelastic. Show the impact of a per-unit excise tax that shifts the supply curve to the left. (Make sure you draw a big graph and a big shift!) On your graph indicate the tax revenue that results from the tax. Also show how the tax is split between the producer and consumer. Who bears the larger burdenthe consumer or the producer