Question

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. How much tax revenue does the government collect? What is the effect of the tax on sellers and consumers?
Compute the excess burden of the tax through changes in consumer/producer surplus.

Answer 1