2009 Free Response Practice
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The graph above illustrates the market for calculators. S denotes the current supply curve, and D denotes the demand curve.
(a) Calculate the producer surplus before the tax. *
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(b) Now assume a per-unit tax of $2 is imposed whose impact is shown in the graph above.
(i) Calculate the amount of tax revenue. *
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(ii) What is the after-tax price that the sellers now keep? *
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(iii) Calculate the producer surplus after the tax. *
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(c) Is the demand price elastic, inelastic, or unit elastic between the prices of $5 and $6 ? Explain. *
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(d) Assuming no externalities, how does the tax affect allocative efficiency? Explain *
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