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# answerstohomework2spring2006 - Economics 102 Spring 2006...

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Economics 102 Spring 2006 Homework #2 Answer Key Problem 1 (a) Use the information in the table to find the equations of the 2 lines. Demand: P = (-1/6) Q d + 150 Supply: P = Q s /3 (b) Set the demand and supply equations equal to each other to find the equilibrium values. (-1/6) Q + 150 = Q/3 Q=300 Plug the equilibrium quantity of 300 into the demand or supply equation to find the equilibrium price. P = 300/3 = 100 (c) (i) The supply curve shifts leftward as a result of this tax. For every quantity, the price they charge will be 5 higher. P=Q s /3 +5 Then, you can find the intersection of the new supply curve and the demand curve (remains the same) to find the new equilibrium. (-1/6) Q + 150 = Q/3 + 5 Q = 290 P = 101.67 (ii) The following figure shows the changes as a result of this tax. Old Supply Demand Quantity Price 290 New Supply 101.67 150 96.67

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The supply curve shifts to the left by 5 units after the tax is imposed. Consumer surplus is the area of the pink triangle. The producer surplus is the area of the green triangle. The area of the blue rectangle is tax revenue.
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answerstohomework2spring2006 - Economics 102 Spring 2006...

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