Question

Given the following inverse demand and supply functions: P = 44 – 2QD

P = 12 + 2QS

(a) Determine the equilibrium quantity and the equilibrium price.

(b) If the government imposes a $8/unit tax on the seller, determine the after tax equilibrium quantity and price. How much of the tax is paid by the seller and the buyer?

(c) If the government now imposes a $10/unit tax on the buyer instead, determine the after tax equilibrium quantity and price. How much of the tax is paid by the seller, and how much is paid by the buyer?

Answer 1