Suppose the market for widgets can be described by the following equations
Demand: P = 10 – Q
Supply: P = Q – 4
Where P is the price in $ per unit and Q is the quantity in thousands of units. Then
a. What are the equilibrium price and quantity?
b. Suppose the government imposes a tax of $1 per unit to reduce widget consumption and raise government revenues. What will the new equilibrium quantity be? What price will the buyer pay? What amount per unit will the seller receive? What will be the total government revenue?
c. The tax is removed and a subsidy of $1 per unit granted to widget producers. What will the equilibrium quantity be? What price will the buyer pay? What amount per unit will the seller receive? What will be the total cost to the government?
Suppose the market for widgets can be described by the following equations
Demand: P = 10 – Q
Supply: P = Q – 4
Where P is the price in $ per unit and Q is the quantity in thousands of units. Then
a. What are the equilibrium price and quantity?
b. Suppose the government imposes a tax of $1 per unit to reduce widget consumption and raise government revenues. What will the new equilibrium quantity be? What price will the buyer pay? What amount per unit will the seller receive? What will be the total government revenue?
c. The tax is removed and a subsidy of $1 per unit granted to widget producers. What will the equilibrium quantity be? What price will the buyer pay? What amount per unit will the seller receive? What will be the total cost to the government?
