Explore BrainMass
Share

Explore BrainMass

    compare the economic incidence of tax with its legal incidence

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Suppose that demand for oranges is given by the following equations:
    Q= -400 P+2,000
    With quanity (Q) measured in oranges per day and price (P) measured in dollars per Orange. The supply curve is given by:

    Q = 1200 P

    A. Compute and present graphically the equilibrium price and quantity of oranges.
    B. Suppose that an excise tax of 25 cents per piece is imposed on oranges. What are the
    new supply and demand curves? What is the new equilibrium price and quantity of
    oranges? What is the new post-tax rice from the supplier's point of view?
    Illustrate your answer by drawing the supply and the demand curves.
    D. Repeat the exercise for 25 cents sales tax instead of excise tax.
    E. Explain in writing what happened when you compare the economic incidence of tax with its legal incidence.

    © BrainMass Inc. brainmass.com October 9, 2019, 8:17 pm ad1c9bdddf
    https://brainmass.com/economics/general-equilibrium/compare-economic-incidence-tax-with-its-legal-incidence-145910

    Solution Preview

    Please see the attached files.

    Suppose that demand for oranges is given by the following equations:
    Q = -400P + 2,000, with quantity (Q) measured in oranges per day and price (P) measured in dollars per Orange. The supply curve is given by: Q = 1200P

    A. Compute and present graphically the equilibrium price and quantity of oranges.
    The equilibrium point is obtained where:
    -400P + 2,000 = 1200P
    Or 1200P + 400P = 2000
    Or 1600P = 2000 $1.25
    At P* = $1.25, Q* = 1200*1.25 = 1500
    Therefore, the equilibrium price is $1.25 per orange and the equilibrium quantity is 1500 ...

    Solution Summary

    This post compares the economic incidence of tax with its legal incidence.

    $2.19