Unformatted text preview: 80 = a O + -0.064(500) 80 = b O + 0.24(500) a o = 112 b o = -40 Q d = 112 - 0.064P Q s = -40 + 0.24P b. The tax represents a price increase to the purchaser regardless of the current price. Thus, the supply curve will be adjusted vertically upward by $25. Q s = -40 + 0.24P or P = 166.67 + 4.17 Q s , then P t = P + $25 = 166.67 + 25 + 4.17Q s P t = 191.67 + 4.17Q s or Q s = -45.96 + 0.24P The new equilibrium price will be: New Supply = Demand Q s = -45.96 + 0.24P = 112 - 0.064P = Q d Solving yields P = $519.60 per truck hood c. Since the new selling price in (c) is $519.60 and the tax is $25 per hood, Midcontinent would receive only $494.6 per hood. As quantity sold has fallen too, revenues would fall....
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This note was uploaded on 04/29/2008 for the course ECON 302 taught by Professor Toossi during the Spring '08 term at University of Illinois at Urbana–Champaign.
- Spring '08
- Price Elasticity