Federal government has decided to impose tax on handguns

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Assume that the federal government has decided to impose a tax on handguns. The market for handguns is currently at equilibrium with the price per gun being $200 and the quantity exchanged being 40,000 guns per month. Assume the elasticity of demand and supply are both equal to 1. The government plans on imposing a tax of $10 per gun.

a. Use a diagram to indicate the situation in this market before the tax is imposed. Label the price consumers pay PC0, the price producers receive PP0, the quantity supplied QP0, and the quantity demanded QC0.

b. In your diagram above, indicate the situation in this market after the imposition of the tax on guns. Label the price consumers pay PC1, the price producers receive PP1, the quantity supplied QP1, and the quantity demanded QC1. Clearly indicate the amount of the tax (per unit) as well as the amount of revenue the government will collect from this tax. I want an exact number

Reference no: EM13896061

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