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...

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....

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...

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

1. Suppose the demand for village defense in Temeria is
Qd=300-2P, and the supply is Qs=4P.
a. Graph the supply and demand curves. (3 points)
b. Solve for the equilibrium price and quantity. Show this point
on your graph from part (a). (5 points)
c. How much consumer surplus is created in this market? How much
producer surplus? (4 points)
d. Suppose the King of Temeria puts a tax of 10 orens per unit
on village defense. Write an equation...

Suppose there is a market at its competitive equilibrium.
Demand p = 100 - QD
Supply p = 20 + (QS /3) The government introduces a subsidy of s
= $4 per unit of the good sold and bought.
(a) Draw the graph for the demand and supply before subsidy.
(b) What is the equilibrium price and quantity before the
subsidy and after the subsidy?
(c) Looking at the prices buyers pay and sellers receive after
the subsidy compared to...

Question:
you are given the following information:
Qs = 100 +
3P
Qd = 400 -
2P
From this information compute equilibrium price and quantity.
Now suppose that a tax is placed on buyers so that
Qd = 400 - 2(P +
T).
If T = 15, solve for the new equilibrium price and quantity.
(Note: P is the price received by sellers and P + T is the price
paid by buyers.) Compare these answers for...

Assume that the demand function for a particular good is
Qd=90-2P and the supply function is Qs= -10+2P. Assume that the
market for the particular good was initially the equilibrium (with
no taxes, no regulation, etc.). Assume that a tax of $1 is imposed
on the sellers of the good. How will the incidence of the tax be
distributed between the sellers (producers) and the buyers
(consumers) of the good?

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