a. Use the following diagram to demonstrate the imposition of a unit excise tax, and identify and explain the tax burden falling upon producer versus consumer. Indicate the revenue and excess burden. Clearly label the diagram in support of your explanation.
b. Now make appropriate ajustments to illustrate a sitiuation where demand is relatively inelastic compared to supply. Demonstrate the imposition of a unit excise tax, identify and explain the tax burden falling upon producer versus consumer. Indicate the revenue and excess burden. Clearly label the diagram in support of your explanation.

Question

Quizplus · Accepted Answer

The Answer is a. A relatively large cost in terms of deadweight loss (FHE) is conferred upon society to raise tax revenue TP_THF. The producers' burden is TP_E and the consumers' burden is P_EP_T.

a. A relatively large cost in terms of deadweight loss (FHE) is conferred upon society to raise tax revenue TP<sub>T</sub>HF. The producers' burden is TP<sub>E</sub> and the consumers' burden is P<sub>E</sub>P<sub>T</sub>. b. The bulk of the impact is to raise price. Consumers bear a larger share of tax burden compared to sellers. In this case, the excess burden (deadweight loss) of the tax is relatively small in relation to the revenue raised by the tax.

b. The bulk of the impact is to raise price. Consumers bear a larger share of tax burden compared to sellers. In this case, the excess burden (deadweight loss) of the tax is relatively small in relation to the revenue raised by the tax.

A Use the Following Diagram to Demonstrate the Imposition of a Unit