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Consider the following market QD= 15-2P QS= 5P-2.5

a. Let the government impose a tax of 1.4 dollars per unit on the seller. Find the new equilibrium price paid by buyers PB and the effective price received by sellers PS.

b. Determine the quantity of the goods bought and sold.

c. Calculate the surpluses and the deadweight loss.

d. Calculate the tax revenue.

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Divya Singh
Divya SinghLv10
28 Sep 2019
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Related questions

Suppose that a market is described by the following supply and demand equations:

QS= 2P

QD = 300P

a. Solve for the equilibrium price and the equilibrium quantity.

b. Suppose that a tax of T is placed on buyers so the new demand equation is QD = 300 (PT). Solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold?

c. Tax revenue is T×Q. Use your answer to part (b) to solve for tax revenue as a function of T. 
d. The deadweight loss of a tax is the area of the triangle between the supply and demand curves. Recalling that the area of a triangle is , solve for deadweight loss as a function of T. 

(Hint: Looking sideways, the base of the deadweight loss triangle is T, and the height is the difference between the quantity sold with the tax and the quantity sold without the tax.)

 

Taxation Question (SHOW ALL WORK)

Suppose that the demand curve (hundreds) for apples is given by Qd = 140 - 5P, where Qd is the number of pounds demanded per year and p is the price per pound. The supply of apples can be described by Qs = 40 + 5P, where Qs is the number of pounds provided.

What is the equilibrium price? (Hint: At the equilibrium, quantity demanded and quantity supplied are equal, Qd = Qs.)

What is the equilibrium quantity supplied and demanded?

Calculate the consumer surplus at the equilibrium price.

Calculate the producer surplus at the equilibrium price.

Calculate the total surplus at the equilibrium price.

Now suppose that the government imposes a tax of $8 per each pound sold, paid by the producers. In this case, what are the price and the consumer surplus?

A country that does not tax cigarettes is considering the introduction of a $0.40 per pack tax. The economic advisors to the country estimate the supply and demand curves for cigarettes as: QD = 140,000 - 25,000P; QS = 20,000 + 75,000P, where Q = daily sales in packs of cigarettes, and P = price per pack. The country has hired you to provide the following information regarding the cigarette market and the proposed tax.

b. What price and quantity would prevail after the imposition of the tax? What portion of the tax would be borne by buyers and sellers respectively?

c. Calculate the deadweight loss from the tax. Could the tax be justified despite the deadweight loss? What tax revenue will be generated?

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