Question

A study finds that the noise from rock concerts is harmful; hence, the government imposes a $30 tax on the sale of every unit. This amount accurately accounts for the external cost of the noise pollution. Before the corrective tax, concert tickets regularly sold for $190. After the tax is in place, the market price for concert tickets rises to $195.Because of the tax, the number of concert tickets sold will ___________.The socially optimal price of concert tickets is________ $ .The private market price is $ .A firm selling concert tickets receives _____$ after it pays the tax.

Answer 1

The correct answer is: decrease; $195; $190; $165.

A study found the noise from rock concerts to be harmful.  
To correct the externality created by the concerts, the government imposes a tax $30 on sale of each unit.  
The price of tickets was initially $190.  
After the imposition of the corrective tax, the price increased to $195.  
This increase in price will cause the demand for tickets to decrease. As a result, the number of concert tickets sold will decrease.  
The socially optimal price of the tickets is $195, as this price eliminates externalities.  
The private market price is the price which was creating externalities, in this case, it is $190.  
We can find the price received by the firms by deducting the tax amount from the new price.  
The price received by the firms is
= $195 - $30
= $165