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How big will the ad-valorem tax need to be

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Suppose the market for grass seed can be expressed as QD = 100 - 5p and QS = 40 + 5p. Answer the following:

  1. If the government collects a $5 specific tax from the consumers, what price will consumers pay after the tax? What price will the sellers receive after the tax? How much the tax revenue? 
  2. If the government wants to collect from an ad-valorem tax levied on the consumers that will generate the same amount of tax revenue as a $5 specific tax levied on the consumers, how big will the ad-valorem tax need to be?

Reference no: EM131877097

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