The equilibrium price and quantity in market for car alarms

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The federal government has imposed a new tax on car alarms. Assume that the tax is physically collected from sellers. a. What effect will this tax have on the equilibrium price and quantity in the market for car alarms? b. Show the impact of the tax on consumer surplus, producer surplus, tax revenue, and total private economic surplus (Note: In this context, total economic surplus = consumer surplus + producer surplus + tax revenues). c. How would the elasticity of demand for large car alarms affect the magnitude of the change in total economic surplus resulting from the tax? d. Given your answers to parts a-b, is there still an argument in favor of such a tax? Explain.

Reference no: EM131246792

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