00:02
Hi, everyone, today we will be solving problem three from chapter 10, which discusses what happens when a government puts a tax on a good.
00:10
And it basically asks us what happens to the price paid by consumers and what happens to the market outcome efficiency.
00:18
So we'll start off with the first part of the question, which asks us about the price paid to consumers.
00:23
And when a tax is put on any good, usually the market price charged to the consumer takes into account the tax on producers.
00:31
The producers basically pass on the tax to the consumers so that the producers can make the same amount of money or a similar amount.
00:40
And so for that part of the question, we want increases.
00:44
It will increase the price paid by consumers.
00:47
So choices c and d are out.
00:50
And then the second part of the question asks us about what will happen to the market efficiency when a tax is put into place.
00:57
And so to answer this part of the question, it's useful to draw a graph.
01:02
So we're going to draw our typical supply and demand graph.
01:09
So price goes here and quantity goes here.
01:15
We're going to put a demand curve down on slipping demand curve.
01:18
It's a pre -usual call that d.
01:20
Now, we're going to start off with the supply curve that would be in the market without any taxes.
01:38
Now, let's say we have a market where people are producing aluminum.
01:43
Aluminum is a product that ends up having a negative externality because the production of aluminum emits pollution to the air...