Question

2Q Consider a closed economy. Let the demand curve be P = 80 - Q and the supply curve be P = 20 + 2Q .

a) Calculate the equilibrium price and equilibrium quantity. b) Suppose the government sets a price ceiling of $55, what is the amount of excess demand or excess supply? (Write down excess demand or excess supply). c) Suppose the government sets a production quota of 16 units, calculate the equilibrium price and equilibrium quantity. 2. Consider a closed economy. Let the demand curve be P = 80 - Q and the supply curve be P = 20 + 2Q . a) Suppose the government imposes an unit tax of $3/unit, calculate Q’, Pc, Ps and the tax revenue i) assuming the tax is imposed on the consumers ii) assuming the tax is imposed on the producers.

Answer 1