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Ebenezer Scrooge has just been elected the new President of Christmasland. As his first action, he is thinking of introducing an excise (or commodity) tax on either Santa hats or Christmas lights. The demand and supply curves for both products are shown on the graphs. Use the graphs to answer the questions. Please explain both question in detail and the how answers were achieved
Ebenezer Scrooge has just been elected the new President of Christmasland. As his first action, he is thinking of introducing an excise (or commodity) tax on either Santa hats or Christmas lights. The demand and supply curves for both products are shown on the graphs. Use the graphs to answer the questions. Please explain both question in detail and the how answers were achieved
The deadweight loss of a 3 tax on Santa hats and Christmas lights is the same, at 30. This is because the two markets have the samedemandand supply curves., we need to first identify theequilibriumpoint for the market for Santa hats without the tax. This is the point where the demand curve and the supply curve intersect. On the graph, this point is at a price of 6 and a quantity of 100 units.If a 3 tax is imposed on Santa hats, the price paid by consumers will increase by 3, to 9. The supply curve will not shift, since the tax is levied on the sellers. The new equilibrium point will be where the demand curve intersects the new supply curve at a price of 9.On the graph, this new equilibrium point is at a price of $9 and a quantity of 80 units. The deadweight loss is the area of the triangle formed by the demand curve, the supply curve, and the new equilibrium price.To calculate thedeadweight loss,we use the following formula:Deadweight loss = 1/2 × (base) × (height)In this case, the base is the difference in quantity between the two equilibrium points, which is 20 units. The height is the difference in price between the two equilibrium points, which is 3.Therefore, the deadweight loss of a 3 tax on Santa hats is:Deadweight loss = 1/2 × 20 units × 3 = 30To answer this question, we follow the same steps as we did for Question 1.The equilibrium point for the market for Christmas lights without the tax is at a price of 5 and a quantity of 120 units.If a 3 tax is imposed on Christmas lights, the price paid by consumers will increase by 3, to 8. The supply curve will not shift, since the tax is levied on the sellers. The new equilibrium point will be where the demand curve intersects the new supplycurveat a price of 8.On the graph, this new equilibrium point is at a price of 8 and aquantityof 100 units. The deadweight loss is the area of the triangle formed by the demand curve, the supply curve, and the new equilibrium price.To calculate the deadweight loss, we use the same formula as we did for Question 1:Deadweight loss = 1/2 × (base) × (height)In this case, the base is the difference in quantity between the two equilibrium points, which is 20 units. The height is the difference in price between the two equilibrium points, which is 3.Therefore, the deadweight loss of a 3 tax onChristmas lightsisDeadweight loss = 1/2 × 20 units × 3 = 30To know more aboutdemandbrainly.com/question/33833381#SPJ1...