Question

4. In the market for airline tickets the equilibrium price of an airline ticket is $500 and 3 million tickets are bought and sold. The government imposes an excise tax on the sale of all airline ticket. After the tax is imposed 1.5 million airline tickets are sold; travelers pay $560 per ticket, $460 of which the airlines receive. a) Calculate the excise tax for an airline tickets. b) What is the incidence of the tax to the consumer? c) What is the incidence of the tax to the producer? d) Calculate the government revenue from the tax? e) Illustrate your answer on a diagram using the concept of elasticity to explain what must be true for this scenario to arise. f) Calculate the deadweight loss from the excise tax.

Answer 1

a) Excise tax = 560-460 = 100

b) Incidence of tax on the consumer = 560-500 = 60

c) Incidence of tax on the producer = 500-460 = 40

d) GR = 100*1.5 m = 150 million

As per HOMEWORKLIB RULES, first four parts are answered