In Boomtown government officials are considering implementing an excise tax on the producers of tennis balls. They have called you in to analyze the impact of this proposed tax. Currently (before the excise tax) market demand and market supply of tennis balls is given in Boomtown are given by the following equations where P is the price per case of tennis balls and Q is the quantity of cases of tennis balls:
- Intuitively, implementation of this tax will cause which curve in our demand and supply graph to shift? Explain the direction of this shift and how this shift will impact equilibrium price and equilibrium quantity in this market once the excise tax is imposed.
- With the imposition of this excise tax, how much tax revenue will be collected by the government in Boomtown?
- With the imposition of this excise tax, what will be the change in consumer surplus relative to the initial level of consumer surplus?