Final answer:
After a $0.35 tax imposed on producers, the equilibrium price of coffee increases to $9.67, and the equilibrium quantity is 11.3 units. The tax incidence includes the additional price consumers pay and the decrease in producers' net receipts due to the tax.
Step-by-step explanation:
Calculating the equilibrium price and quantity after a specific tax is imposed requires understanding how the tax affects demand and supply functions. In the case of coffee, where the estimated demand function is Q = 21 - p, and the supply function is Q = 9 + 0.25p, we are given that the tax t paid by producers affects these functions, resulting in new equilibrium functions for price and quantity: p = 0.2t + 9.6 and Q = 11.4 - 0.2t. To find the equilibrium after a tax of $0.35 is imposed, we simply substitute t with 0.35 in both equations.
The equilibrium price becomes p = 0.2(0.35) + 9.6 = $9.67 when rounded to two decimal places. The equilibrium quantity is Q = 11.4 - 0.2(0.35) = 11.33, which can be rounded to 11.3. The tax incidence on consumers can be determined by analyzing the difference between the new equilibrium price paid by consumers and the initial equilibrium price without the tax.When assessing the tax incidence, which refers to the burden of the tax divided between producers and consumers, we can see that the consumer's burden is the additional amount they pay over the initial market equilibrium price due to the tax. In contrast, the producer's incidence is the amount by which their net receipts decrease due to the tax.