The market for cleansers in China is perfectly competitive. Market demand is the usual downward sloping curve and market supply is the usual upward sloping curve. Assume no externalities. There is a $2 per-cleanser tax paid by the sellers. 1. a) The price of acids (an ingredient in cleansers) increases. How will this impact tax revenues from cleansers? Explain your reasoning. A diagram is not an answer. Your explanation needs to be sufficient without a diagram. 2. b) China is going to vote on removing the tax. A person on the news says that councillors should vote against the tax removal (like keep the tax). They claim that removing the tax will raise the market price of cleansers making consumers worse off. Do you agree? Explain your reasoning. 3. c) Modified version of the vote passes. The tax on cleansersis reduced from $2 to $1. What do you predict will be the impact on tax revenues from cleanser sales? Clearly state what information will you need to determine it and explain how it will affect your answer.

The market for cleansers in China is perfectly competitive. Market demand is the usual downward sloping curve and market supply is the usual upward sloping curve. Assume no externalities. There is a $2 per-cleanser tax paid by the sellers. 1. a) The price of acids (an ingredient in cleansers) increases. How will this impact tax revenues from cleansers? Explain your reasoning. A diagram is not an answer. Your explanation needs to be sufficient without a diagram. 2. b) China is going to vote on removing the tax. A person on the news says that councillors should vote against the tax removal (like keep the tax). They claim that removing the tax will raise the market price of cleansers making consumers worse off. Do you agree? Explain your reasoning. 3. c) Modified version of the vote passes. The tax on cleansersis reduced from $2 to $1. What do you predict will be the impact on tax revenues from cleanser sales? Clearly state what information will you need to determine it and explain how it will affect your answer.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter8: Market Failure

Section: Chapter Questions

Problem 2P: Draw a standard supply and demand diagram for televisions, and indicate the equilibrium price and...

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