Consider the graph at right. Assume that before any tax, firms were willing to s

Question

Consider the graph at right. Assume that before any tax, firms were willing to supply 5 thousand pounds of lobster at a price of $50 per pound. Use the line drawing tool to draw a new supply curve reflecting a $30 per pound tax. Label this line 'STax Carefully follow the instructions above, and only draw the required object. (Enter all responses as whole numbers) The new price consumers will pay is $ 65 and the new price producers will receive is $ 35 The tax revenue that will be generated is $105,000

Explanation / Answer

When tax gets imposed and the burden is bear by seller, then supply curve shifts upward. An increase in tax of $30 per pound the supply curve whill shift upward with a margin of $30 at every level. In other words, in previous schedule of supply if we increase the price levels by $30 then any change in quantity demanded will make the whole shifting of the supply curve upward.

Now with a new supply curve and the old demand curve a new equilibrium will be formed. This equilibrium's corresponding price will be equilibrium price that is $65. But this is not what producers will recieve. Producer will pay taxes according to $30 per pound and after that they will get $65 - 30 = $35. Thats how producer will receive $35.

And the if we multiply the per unit tax that is $30 with equilibrium quanity then we will get tax revenue that is $105,000.

Note: The graph is not present hence graphical presentation can not be shown.

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