Question

Suppose that the (inverse) demand for Sugar in the US is given by, P= 75-2 Qd

where P = price per bulk bag (in dollars) and Q_d = quantity demanded (in millions of bulk bags).

Suppose the (inverse) supply of sugar is given by, P= 3 Qs

where P = price per bulk bag (in dollars) and Q_s = quantity supplied (in millions of bulk bags).

a.) Find the equilibrium price and quantity of sugar exchanged in the US market, find the Producer Surplus, Consumer Surplus, and Total Surplus without trade (10 points).

b.) Now the US imposes a tax on sellers of $10 per bulk bag of sugar. Find the new equilibrium quantity after the tax, price buyers pay, price sellers receive, tax revenue, and DWL. Draw and label your graph for full credit.

Answer 1