 ## Calculating impact of a tax - example

Assume a linear demand function of the form:

Qd = 120 - 5P

and a linear supply curve of the form:

Qs = -30 + 10P

1. Calculate the quantities demanded and supplied for prices from \$3 - \$15.
2. Plot these figures to give the demand and supply curves for the product (use graph paper)
3. Calculate the equilibrium price and output and plot on graph
4. Indicate the consumer and producer surplus before the tax (using colour may help) - I would just outline the relevant areas rather than shading them
5. If the government imposes a specific tax per unit of \$3, plot the new supply curve on the original supply and demand diagram.
6. Use the diagram to find out the new equilibrium price and quantity.
7. Calculate the tax revenue received by the government, indicate it on your diagram
8. Calculate the revenue received by the firms:
1. before the tax
2. after the tax
9. Calculate consumer expenditure:
1. before the tax
2. after the tax
10. Outline consumer surplus after the tax, by how much has CS changed? How much is transferred to producers? How much to goverment?
11. Outline producer surplus after the tax, by how much has it changed?
12. State the effects of the tax, 