Effects of an excise tax on sale of marijuana in New Jersey

Second Memo Assignment

Your job as Finance Director for the State of New Jersey is proving to be tougher than you thought. Now you are being asked to write a memo to the Governor describing the likely effects of a government-imposed excise tax on the sale of marijuana in the state. Assume that the sale of marijuana has become legal in the state and that it is sold at state-certified dispensaries.


As before the Memo should begin like this:

To: Governor Phil Murphy

From: Your name

Subject: Effects of an excise tax on sale of marijuana in New Jersey

Date: Today’s date


Begin your Memo with a diagram of the current supply and demand for the product. 

Use a graph to illustrate how the price and quantity transacted after the excise tax would differ from the pre-tax equilibrium price and quantity. Don’t use actual numerical estimates of price and quantity, just symbols and letters (e.g., Q1, P1, Q2, P2, A,B,C, etc.). You can illustrate the effect of the tax either by shifting the demand curve as on page 130 of the text, or just drawing a line between the demand and supply curves equal to the amount of the tax, as we illustrated in class.  You can draw the Chart with Google Draw, or else, draw the Chart by hand and submit a photo/screenshot with your document.

Also illustrate your estimate of the revenue that the tax would generate, again without using actual numbers. Cite your assumptions in making this estimate. Do a separate analysis for the short-run and long-run. 

Briefly compare the likely revenue effects of the tax on marijuana with the likely effects of an additional excise tax on gasoline. (No need for a chart here). Why might you prefer a tax on marijuana even if it generated less revenue than the gasoline tax? 

Review the material in Chapter 4 of the text, pages 126-129.

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