Question

. The market for a product is defined by the following demand and supply curves:

                                   Qd=20-7p

                                   Qs=-4+5P

Assume that a tax for £2 per unit is placed on the product.

   (a) Derive the new equilibrium consumer and producer prices and quantity.

   (b) By what proportion of the tax does the equilibrium price paid by consumers rise?

   (c) Find the amount of tax revenue gained by the government.

Answer 1