Problem - A cash-starved town decides to impose a $6 excise tax on T-shirts sold. The following table shows the quantity demanded and the quantity supplied at various prices. Price Per T-Shirt Quantity Demanded Quantity Supplied $19 0 60 $16 10 50 $13 20 40 $10 30 30 $7 40 20 $4 50 10 $1 60 0
a. What are the equilibrium quantity demanded and the quantity supplied before the tax is implemented? Determine the consumer and producer surplus before the tax.
b. What are the equilibrium quantity demanded and the quantity supplied after the tax is implemented? Determine the consumer and producer surplus after the tax.
c. How much tax revenue does the town generate from the tax?
d. How large is the inefficiency/deadweight loss?
e. Draw this graph and label/shade in CS, PS, tax revenue, and deadweight loss. Be sure to be neat.