Suppose the market for grass seed can be expressed as QD = 100 - 5p and QS = 40 + 5p. Answer the following:
- If the government collects a $5 specific tax from the consumers, what price will consumers pay after the tax? What price will the sellers receive after the tax? How much the tax revenue?
- If the government wants to collect from an ad-valorem tax levied on the consumers that will generate the same amount of tax revenue as a $5 specific tax levied on the consumers, how big will the ad-valorem tax need to be?