Question

Suppose that in the short run, demand for chicken sausage is given by Q = 100, 000 − 5, 000P and supply by Q = 80, 000 + 5, 000P, and that the equilibrium price and quantity in the market are $2/lb. and 90,000 lbs. respectively.

(i) Suppose a $0.50 per-unit tax is imposed on consumers in the market. Find the post-tax quantity, the price paid by consumers, and the price received by producers.

(ii) How much of the tax burden is borne by consumers in the long run? Explain.

Answer 1

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