Question

Draw the Marijuana Market (both a supply and demand) and label everything. You can choose a P1 or Q1 option instead of numbers or choose your own numbers. Shift the curve that would occur in the following market for marijuana if the government imposes an excise tax on marijuana sales. What will be the effect on price and quantity

Answer 1

Solution :

The diagram depicts the market for Marijuana where DD represents the demand curve and SS represents the supply curve and initial equilibrium occurs at the point $E_1$, where $P_1$ is the initial equilibrium price and $Q_1$ is the initial equilibrium quantity.

An excise tax on marijuana sales will increase the cost of the production of marijuana and shift the supply curve leftwards to S+tax with new equilibrium at point $E_2$ where the equilibrium price of marijuana has increased to $OP_2$ and equilibrium quantity of marijuana has decreased to $OQ_2.$