Question

25) Recall the demand and supply equations: QD=20 - 2P and QS=3P. (a) Suppose a $5...

25) Recall the demand and supply equations: QD=20 - 2P and QS=3P.

(a) Suppose a $5 tax, T=5, has been levied on consumers: (i) Compute the new demand curve (ii) Draw the new demand curve in (a)

(b) Compute the DWL of the consumer and the producer after the tax.

(c) Compute the tax revenue generated by the $5 tax.

(d) Compute the consumer surplus, CS1, after the $5 tax has been enforced.

(e) Compute the producer surplus, PS1, after the $5 tax has been enforced.

Homework Answers

Answer #1

Set QD=QS for equilibrium quantity and price

20-2p=3p

20=3p+2p

p=20/5 = 4

q=20-2(4) = 12

To find the Y-axis intercepts

When QD=0,P=20/2 = 10

When QS=0, P=0

a) A tax on consumers will shift the demand curve to the left by $5 at each price level.

as shown by the new demand curve D2

b) DWL of consumer = 0.5*(12-5)*(7-4) = 10.5

DWL of the producer = 0.5*(12-5)*(4-2) = 7

Total DWL = 17.5

c) Tax revenue = 5*5 = 25

d) CS after the tax = 0.5*5*(10-7) = 7.5

e) PS after the tax = 0.5*5*(2-0) = 5

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Qd= 20-2P and Qs= 3P. a) Draw the demand and supply curves. b)What is the equilibrium...
Qd= 20-2P and Qs= 3P. a) Draw the demand and supply curves. b)What is the equilibrium point. c) Computer initial Consumer Surplus, CS0. Show work. d) Computer initial Producer Surplus, PS0. Show work. e) Computer initial Total Surplus. TS0. Show work. f) Supposed a $5 tax, T=5, has been levied on consumers. (i) Compute the new demand curve (ii) Draw the new demand curve in (a). g) Compute the DWL of the consumer and the producer after tax. h) Compute...
Suppose demand and supply can be characterized by the following equations: Qd = 6 – 2P...
Suppose demand and supply can be characterized by the following equations: Qd = 6 – 2P Qs = P Price is in dollars; quantity is in widgets. For parts (a) and (b), assume there is no tax. Show your work for each step below. Find the equilibrium price and quantity algebraically. Calculate the following: consumer surplus producer surplus total firm revenue production costs For parts (c) and (d), assume a tax of $1.50 per widget sold is imposed on sellers....
1. Suppose the demand for village defense in Temeria is Qd=300-2P, and the supply is Qs=4P....
1. Suppose the demand for village defense in Temeria is Qd=300-2P, and the supply is Qs=4P. a. Graph the supply and demand curves. (3 points) b. Solve for the equilibrium price and quantity. Show this point on your graph from part (a). (5 points) c. How much consumer surplus is created in this market? How much producer surplus? (4 points) d. Suppose the King of Temeria puts a tax of 10 orens per unit on village defense. Write an equation...
Assume that supply and demand are given by the equations: QS = 500P QD = 3600...
Assume that supply and demand are given by the equations: QS = 500P QD = 3600 – 1000P A $0.60 per unit tax imposed on sellers in this market. Sketch a graph showing values for equilibrium price and quantity before the tax, the effect of the tax on supply, and the effect of the tax on the price paid by consumers, the price retained by sellers, and the quantity bought and sold. Show all of these values in your graph....
Suppose that a market is described by the following supply and demand equations: QS = 2P...
Suppose that a market is described by the following supply and demand equations: QS = 2P QD = 400 - 3P Solve for the equilibrium price and the equilibrium quantity. Suppose that a tax of T is placed on buyers, so the new demand equation is QD = 400 – 3(P+T) Solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold? Tax revenue is T x Q. Use...
A market is described by the following supply and demand curves: QS = 2P QD =...
A market is described by the following supply and demand curves: QS = 2P QD = 400 - 3P Solve for the equilibrium price and quantity. If the government imposes a price ceiling of $70, does a shortage or surplus (or neither) develop? What are the price, quantity supplied, quantity demanded, and size of the shortage or surplus? If the government imposes a price floor of $70, does a shortage or surplus (or neither) develop? What are the price, quantity...
Suppose the demand for pickles on The Citadel is Qd=500-4P, and the supply is Qs=6P. Assume...
Suppose the demand for pickles on The Citadel is Qd=500-4P, and the supply is Qs=6P. Assume this market is perfectly competitive. d. Suppose the Council puts a tax of $5 per unit on the purchase of pickles. Write an equation showing the relationship between the price paid by consumers and the price received by producers. e. Find the new (after-tax) equilibrium quantity of pickles, price paid by consumers, and price received by producers. f. How much consumer surplus is created...
The demand and supply for a good are respectively QD = 16 – 2P + 2I...
The demand and supply for a good are respectively QD = 16 – 2P + 2I and QS = 2P – 4 with QD denoting the quantity demanded, QS the quantity supplied, and P the price for the good. Suppose the consumers’ income is I = 2. 6) Determine the price-elasticity of demand if P = 2. 7) Determine the income-elasticity of demand if P = 2. 8) Determine the price-elasticity of supply if P = 4. 9) Determine consumers’...
Consider a market for beer with a demand curve which is: Qd = 25 - 2p...
Consider a market for beer with a demand curve which is: Qd = 25 - 2p and a supply curve which is: Qs = 3P a) Find the equilibrium price and quantity. Suppose that the government decided they wished to levy a $2 tax on suppliers. b) Find the new price paid by the consumer and the price received by the seller. c) Based on the tax sharing burden by both the consumer and the seller, comment on the relative...
1. The market demand and supply was given as follow: Qd = 10 – 2P Qs...
1. The market demand and supply was given as follow: Qd = 10 – 2P Qs = -5 + 3P a) Compute for the Price equilibrium b) Compute for the Quantity equilibrium c) Plot/graph the following equation. 2. Given the equation, find the equilibrium price and quantity of the following market and plot the equation. 13P – Qs = 27 Qd + 4P – 24 = 0