Question

in a competitive market, demand is described by qd = wpp - 5p, and supply is qs = 100 + 5p. suppose a specific or unit tax of $10 per unit of quantity traded is imposed on the consumers. what is the equilibrium quantity after the tax is imposed?

qd= 200 -5p

Answer 1

1. Since the tax is imposed on consumers they need to pay an additional price, therefore, the tax has been added to the price in the demand function.

2. After determining the equilibrium price, substitute it in the new demand function or supply function to get the equilibrium quantity after tax.