Market Equilibrium and Taxes
Instructions: This Assignment requires a combination of short paragraph answers and computations. Answer all of the following questions in this document. You are required to follow proper APA format. Read the Criteria section below for more information before you begin this Assignment.
1. Analyze what would happen to the equilibrium price and quantity in the market for Pepsi if the following occurred. Briefly explain your answers.
a. The price of Coke decreases.
b. Average household income falls from $50,000 to $43,000.
c. There are improvements in soft-drink bottling technology.
d. The price of sugar increases and Pepsi launches an extremely successful advertising campaign.
2. Analyze the following demand and supply equations to answer the questions.
Demand Equation: Qd = 100 – 4P
Supply Equation: Qs = 10 + 6P
a. What is the equilibrium price? What is the equilibrium quantity?
Hint: Equate Qd = Qs. Solve for the equilibrium price and then the quantity.
b. Assume the government places a price ceiling at $7 in the market. What is the quantity demanded? What is the quantity supplied? Is there a shortage or a surplus?
3. Using the diagram below, answer the following questions:
(Description of graph: The following diagram shows the effects of a tax increase on the price and quantity of cigarettes. The initial equilibrium values before tax increase occur at the equilibrium Quantity of 20 billion packs of cigarettes at the equilibrium price of $4.50. Assume the government increases the tax rate on cigarettes per pack, and this action of the government shifts the supply curve to the left. The new equilibrium values after-tax increase are new equilibrium Quantity of 18 billion packs of cigarettes at the new equilibrium price of $5.50. Note also that the minimum producers’ price along the supply graph at new equilibrium after-tax increase is $4.25 per pack of cigarettes.)
a. How much is the per-unit (pack) tax on cigarettes? Show your work.
b. What price do consumers pay after the tax?
c. How much tax revenue is collected? Show your work.
d. What is the amount of deadweight loss after the tax is imposed on cigarettes? Show your work.
References (add references in APA format in the space below)
• This Assignment should be completed in this Word document.
• It should be written in Standard English and demonstrate exceptional content, organization, style, and grammar and mechanics.
• Respond to the questions in a thorough manner, providing specific examples where asked.
• Your sources and content should follow proper APA format (A title page is not required). Review the APA formats found in the Writing Resources accessed through the Academic Success Center within the Academic Tools area of the course.
• Review the grading rubric to ensure all points have been captured in the paper. For more information on Economic Equilibrium check on this: https://en.wikipedia.org/wiki/Economic_equilibrium
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