Question

Suppose that a market is described by the following supply and demand equations:

Q^{S} = 2P

Q^{D} = 400 - 3P

Suppose that a tax of T is placed on buyers, so the new demand equation is

Q^{D} = 400 – 3(P+T)

Solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold?

Tax revenue is T x Q. Use your answer from part (b) to solve for tax revenue as a function of T. Graph this relationship for T between 0 and 400.

The deadweight loss of a tax is the area of the triangle between the supply and demand curves. Recalling that the area of a triangle is 1?2xbasexheight, solve for deadweight loss as a function of T. Graph this relationship for T between 0 and 400. (Hint: Looking sideways, the base of the deadweight loss triangle is T, and the height is the difference between the quantity sold with the tax and the quantity sold without the tax.)

The government now levies a tax of $300 per unit on this good. Is this a good policy? Why or why not? Can you propose a better policy?

Answer #1

Suppose that a market is described by the following supply and
demand equations:
QS = 2P
QD = 400 - 3P
Solve for the equilibrium price and the equilibrium
quantity.
Suppose that a tax of T is placed on buyers, so the new demand
equation is
QD = 400 – 3(P+T)
Solve for the new equilibrium. What happens to the price
received by sellers, the price paid by buyers, and the quantity
sold?
Tax revenue is T x Q. Use...

A market is described by the following supply and demand
curves:
QS = 2P
QD = 400 - 3P
Solve for the equilibrium price and quantity.
If the government imposes a price ceiling of $70, does a
shortage or surplus (or neither) develop? What are the price,
quantity supplied, quantity demanded, and size of the shortage or
surplus?
If the government imposes a price floor of $70, does a shortage
or surplus (or neither) develop? What are the price, quantity...

The market for a particular good is described by the following
demand and supply equations
respectively: QD = 448 – 3.5P and QS = 2.5P – 80. Consider that
after much discussion among
policymakers and following a final vote, the government
implements a 20% ad valorem tax on sellers of
the good. The market adjusts and is currently in
equilibrium.
[a.] After the tax is implemented, what quantity of the good is
traded? What price do buyers pay and
what...

Suppose demand and supply can be characterized by the following
equations:
Qd = 6 – 2P
Qs = P
Price is in dollars; quantity is in widgets.
For parts (a) and (b), assume there is no tax. Show your work
for each step below.
Find the equilibrium price and quantity algebraically.
Calculate the following:
consumer surplus
producer surplus
total firm revenue
production costs
For parts (c) and (d), assume a tax of $1.50 per widget sold is
imposed on sellers....

Let the market demand curve be QD=8-P
and the market supply curve be QS=P. Let
price P be measured in $/unit and let quantity Q
be measured in singular units (i.e. simple count).
Solve for the equilibrium price P* and
quantity Q*.
Now, assume the government imposes a $2/unit tax on consumers,
which leads to wedge/gap between the buyers’ price
Pb and the sellers’ price
PS.
Rewrite the demand and supply curves using Pb
and PS, respectively.
Write down the...

Suppose the market for soda is represented by the following
supply and demand equations:
QS = 35P – 39.75 and
QD = 10.25 – 5P, where P is
price per bottle and Q measures bottles per second.
a. What are the value of consumer and producer surplus?
b. If the government imposes a $0.50 tax per bottle, what are
the value of consumer and producer surplus?
c. What is the deadweight loss from the tax? How much revenue
does the...

25) Recall the demand and supply equations: QD=20 -
2P and QS=3P.
(a) Suppose a $5 tax, T=5, has been levied on consumers: (i)
Compute the new demand curve (ii) Draw the new demand curve in
(a)
(b) Compute the DWL of the consumer and the producer after the
tax.
(c) Compute the tax revenue generated by the $5 tax.
(d) Compute the consumer surplus, CS1, after the $5
tax has been enforced.
(e) Compute the producer surplus, PS1, after...

Consider the following supply and demand functions
qD = 12-3p
qS = -3 + 2p
a) Plot the supply and demand functions.
b) What are the equilibrium price and quantity?
c) At the equilibrium price and quantity, what is the price
elasticity of demand?
d) Interpret the price elasticity of demand. How much will
quantity change if the price increases by 1%?
e) Suppose I were to calculate an income elasticity of e = 0.5
What does this imply about...

1. The market demand and supply was given as follow: Qd = 10 –
2P Qs = -5 + 3P
a) Compute for the Price equilibrium
b) Compute for the Quantity equilibrium
c) Plot/graph the following equation.
2. Given the equation, find the equilibrium price and quantity
of the following market and plot the equation. 13P – Qs = 27 Qd +
4P – 24 = 0

2. Demand and supply in a market are expressed as follows: 2P +
QD = 20 P - QS = 1. Suppose now that the government decides to
introduce a tax per unit sold in the amount t = $3.
a) Determine the new equilibrium quantity in the market, the
prices paid by consumers and received by sellers, as well as the
government's revenues.
b) Represent the changes occurring in equilibrium on a graph.
Identify on that graph the deadweight...

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