Question

2. The following are the market Demand and Supply functions for salmon steak.

Q_{D} = 8000-1000 P

Q_{S} = 2000P – 4000

Suppose the local government imposes a sales tax of $0.75 per pound. Find:

a. The original equilibrium price and quantity.

b. The after-tax price and quantity.

c. The absolute and percentage shares for consumers and producers of the tax burden.

d. Show on a graph the tax burden and its division between consumers and producers.

Answer #1

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