JNU SSS 2019 - Question 33 (Solution)

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward sloping straight line. Suppose the equilibrium quantity in the market for cigars is $1000$ per month when there is no tax. Then a tax of $ \$0.5$ per cigar is imposed. The effective price paid by buyers increases from $ \$1.5$ to $ \$1.9$ and the effective price received by sellers falls from $ \$1.5$ to $ \$1.4$. The government's tax revenue amounts to $ \$475$ per month. Which of the following statements is correct?
Given,
Equilibrium quantity of cigars is $1000$ per month.
Tax imposed per cigar is $ \$0.5$
Govt. tax revenue = $ \$475$
Let $y$ be the equilibrium quantity of cigar after tax. 
We also know, Tax revenue of govt. is tax rate times the quantity taxed. 
$$\implies Tax \ Revenue=0.5 \times y \\ \implies 475=0.5 \times y \\ \therefore y=475 \times 2 \\ =950$$


Dead-Weight Loss (DWL)

Dead-weight Loss is given by the area of the triangle $ABC$, 
$$DWL=\frac{1}{2} \times Base \times Height \\ = \frac{1}{2} \times (1000 - 950) \times (0.5) \\ = \$ 12.5$$

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