What Happens If Government Increases Marijuana Sales Tax?

Part A 

In case the company spends the cash it has on commercials and advertisements on their pets, there will be a shift in the demand curve. There will be a slight increase in the quantity demanded. The movement along the demand curve is caused by the fluctuations in the prices of items (Welch and Welch, 2010) . The changes in income, the cost of a substitute and complementary product cause a shift in the demand curve to the left or right concerning their variations (Krugman and Wells, 2013). 

The scenario describes the change in the quantity supplied. The difference in the supply curve occurs as a result of changes in the price of other items, number of retailers, the amount of the essential inputs, technology, and presumptions. The shifts in the supply curve influence the value of the supply that will be incurred by the company (Samuelson and Nordhaus, 2010) . In the case of the furniture factory, the only changes that will occur are on the expenditure of the supply which will be made 1.5 times above the ordinary cost. It means that the price will be the only thing that will change. The changes in the rate will result in the movements along the supply curve. The curve will move upwards due to the rise in the amount of supply (Krugman and Wells, 2013). 

In case the government increases a 20% rate of the tax on the sales that the retailer makes from Marijuana, it will not result in a loss of 20 % of the overall margins. The profits of the dealer will not increase, but they will not incur the tax burden. The Marijuana industry is a monopoly because there are fewer business people that can pose competition. The industry has no players who the entrepreneurs can compete with. The retailers and dealers of Marijuana can increase the prices of the products after the government increases the tax rates. The increase in the amount of Marijuana will not affect the demand for the product because it is a monopolistic industry. The Marijuana industry has a single supplier which gives the retailer the freedom to increase the prices and the burden of the tax is shifted to the user (Mankiw, 2011) . The demand curve for Marijuana will be inelastic. The variations in the value of the product will not affect its demand (Krugman and Wells, 2013). 

Part B 

Price	Quantity Demanded	Quantity Supplied	Surplus Amount or Shortage Amount
200	700	450	-250
220	670	490	-180
240	640	530	-110
260	610	570	-40
280	580	610	30
300	550	650	100
320	520	690	170
340	640	730	90

QD is Quantity demanded and QS is Quantity supplied 

QD=1000-1.5 P and QS =50+ 2P 

When P=200 then, 

QD= 1000- 1.5 (200) =700 QS= 50+ 2(200) =450 

When P=220, then 

QD=1000-1.5(220) =670 QS=50+2(220) = 490 

When P=240, then 

QD=1000+1.5 (240) =640 QS=50+2 (240) =530 

When P=260, then 

QD=1000+1.5 (260) =610 QS=50+2 (260) =570 

When P=280, then 

QD=1000+1.5 (280) =580 QS=50+2 (280) =610 

When P=300, then 

QD=1000+1.5 (300) =550 QS=50+2 (300) =650 

When P=320, then 

QD=1000+1.5 (320) =520 QS=50+2 (320) =690 

When P=340, then 

QD=1000+1.5 (340) =640 QS=50+2 (340) =730 

Question 1 

QD= 1000-1.5P 

QS= 50+2P 

Equilibrium price is QD=QS 

1000-1.5P= 50+2P 

950=3.5P 

P= 271.43 

Question 2 

QD= 1000-1.5P 

QS= 100+2P 

QD=QS 

1000-1.5P=100+2P 

900=3.5P 

P= 257.14 

References 

Krugman, P., & Wells, R. (2013).  Economics  (1st ed.). New York, NY: Worth Publishers. 

Mankiw, N. G. (2011). Principles of economics . Mason, Ohio: Thomson South-Western. 

Samuelson, P. A., & Nordhaus, W. D. (2010). Economics . New Delhi: Tata McGraw Hill. 

Welch, P. J., & Welch, G. F. (2010). Economics, theory & practice . Hoboken, N.J: John Wiley.