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Assume a perfectly competitive market without externalities. Market Demand is given by P=80-Q and Market Supply...

Assume a perfectly competitive market without externalities. Market Demand is given by P=80-Q and Market Supply is given by P=Q+10. The government imposes a per-unit tax of t=10 which the buyer pays. What is market price? Enter a number only, no $ sign.

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Answer #1

Given, Demand curve, P = 80 - Q

Supply P = Q + 10

Government imposed a tax of $ 10 per unit.

The price received by sellers will be less than the price paid by buyers. Let us assume price paid by buyers is P then the price received by sellers will be

New, supply curve

P - 10 = Q + 10

=> P = Q + 20

Now equate demand with supply

80 - Q = Q + 20

=> 2Q = 60

=> Q* = 30 units

=> P* = $ 50 per unit

Price paid by buyers = $ 50 per unit

Price received by sellers = $ 40 per unit

Market price = $ 50 per unit

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