Question

# Suppose that the inverse demand for webcams is given by P = 150 – Q and...

Suppose that the inverse demand for webcams is given by P = 150 – Q and the inverse supply for webcams is given by P = 30 + 2Q.

1. (20 points) If the market for webcams faces a quota of 30 units, then what are the equilibrium price and quantity?
2. (20 points) If the market for webcams faces a quota of 30 units and a tax of \$60 per webcam, then what are the equilibrium price and quantity?
3. (10 points) In dollars, what is the tax incidence across consumers and suppliers in this case?

Inverse Demand function is P= 150- Q and Inverse Supply function is P= 30+ 2Q

1) Equilibrium price and quantity when a quota of 30 units is imposed.

150-Q-30= 30+2Q-30

120= 3Q

Q= 40.

Therefore putting the value of Q in the equation, P= 110.

2) Equilibrium price and quantity when quota pf 30 units and tax of 60 per unit is imposed.

150-Q+ 60Q - 30 = 30+ 2Q-30+60Q

Q= 40.

Therefore putting the value of Q in the equations above, the equilibrium price is \$110.

3) Calculating tax incidence across consumers and suppliers in this case-

tax= 60Q

Q= 40

Hence, 60Q= 2400

Therefore the tax incidence is \$2400