Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 6: Q. 6.7 (page 140)

The British government recently imposed a unit excise tax of about$154 per ticket on airline tickets for flights to or from London airports. In answering the following questions, assume normally shaped demand and supply curves.

a. Use an appropriate diagram to predict the effects of the ticket tax on the market-clearing price of London airline tickets and on the equilibrium number of flights into and out of London.

b. What do you predict is likely to happen to the equilibrium price of tickets for air flights into and out of cities that are in close proximity to London but are not subject to the new ticket tax? Explain your reasoning.

Short Answer

Expert verified

Market clearing price will increase and equilibrium number of tickets decrease.

Step by step solution

01

Step1. Given information

British government imposed a tax of $154 per ticket, to and from London.

02

Step2. a. Explanation

The diagram explains the effects of tax. The price shall certainly increase, but if entire tax is borne by the buyer, the demand will fall considerably. So, both buyer and seller shall partly borne the burden of tax.

As a result, the market clearing price increase and equilibrium quantity fall.

03

Step3. b. Explanation

To avoid this excise tax, people might choose other close-by airports instead of directly travelling to London. This will increase the demand for the other airports' tickets, and hence the price shall rise too. But this time, the equilibrium quantity shall increase.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Given that in recent years, the governments of many nations have been reducing corporate income tax rates in relation to the US rate (which remains one of the world's highest), is the US tax base shrinkage likely to slow down or speed up? Explain.

What was the individual's marginal state income tax rate in 2018? Did this individual experience proportional, progressive, or regressive taxation? Explain briefly.

Suppose that a state has increased its sales tax rate every other year since 2009. Assume the state collected all sales taxes that residents legally owed. The table below summarizes its experience. What were total taxable sales in this state during each year displayed in the table?

If average income tax rates paid by lowest income taxpayers were increased to equality with those paid by the highest income taxpayers, would the US income tax system more or less progressive ? Explain your reasoning .

To raise funds aimed at providing more support for

public schools,astate government has just imposed

aunit excise tax equal to\(4for each monthly unit

of wireless phone services sold by each company

operating in the state.The following diagram

depicts the positions of the demand and supply

curves for wireless phone services before the unit

the excise tax was imposed. Use this diagram to deter

mine the position of the new market supply curve

now that the tax hike has gone into effect.

a.Does imposing the \)4-per-month unit excise tax

cause the market price of wireless phone ser

vices to rise by\(4per month?Why or why not?

b.What portion of the \)4-per-month unit excise

tax is paid by consumers? What portion is paid

by providers of wireless phone services?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free