Question

Suppose the weekly demand for a certain good in thousands of units, is given by the equation P = 35 - Q, and the weekly supply curve of the good by the equation P = 15 + Q where P is the price in dollars. Finally, suppose a per-unit tax of $6, to be collected from sellers is imposed in this market. Complete the following questions. Note: If necessary round your answers to two decimal places.

**a)** Graph the weekly demand, supply (pre-tax),
and supply (post-tax) equations.

**b)** What is the equilibrium price before the
tax?

Equilibrium Price = $0

**c)** What is the Consumer and Producer Surplus
before the tax?

**Note:** Remember that the quantity of units on the
graph are in thousands.

Producer Surplus = $0Consumer Surplus = $0

**d)** What is the new Consumer and Producer
surplus after the tax is imposed?

**Note:** Remember that the quantity of units on the
graph are in thousands.

Producer Surplus = $0Consumer Surplus = $0

**e)** How much government revenue will this tax
generate a week?

**Note:** Remember that the quantity of units on the
graph are in thousands.

Government Revenue = $0 per week

Answer #1

Suppose that the demand equation: P = 6 – Q and supply equation:
P = Q.
a. Calculate the price elasticity of demand at
equilibrium.
b. Calculate the equilibrium price and quantity, and consumer
surplus and producer surplus.
c. Suppose government imposes a unit tax of $1 on producers. Derive
the new supply curve and also calculate the new equilibrium price
and quantity.
d. Calculate tax revenue and the deadweight loss of this tax.

The demand curve of a perfectly competitive product is
described by the equation:
P = $1000 – Q where Q =
thousands
The supply curve is given by
P = $100 + 2Q where Q =
thousands
Graph the demand and supply curves; use a grid size of 100.
Calculate the equilibrium price and quantity (carefully state the
units). Find the consumer surplus CS, the producer surplus
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QD = 12 - 2P
Supply:
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Equilibrium price _____________
2. Equilibrium quantity _____________
Consumer surplus
___________
4. Producer surplus ___________
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b. How much is produced
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p=s(q)=5.2q
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Price is in dollars; quantity is in widgets.
For parts (a) and (b), assume there is no tax. Show your work
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consumer surplus
producer surplus
total firm revenue
production costs
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