disc6 - DISCUSSION SECTION 6 Equilibrium: Qd=Qs -Quantity...

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DISCUSSION SECTION 6 Equilibrium : Q d =Q s ------------------------------------------------------------------------------------------------------------ Quantity tax is a tax of a certain amount of money per unit sold. Ad Valorem tax (Value tax) is a percentage tax on the price of the good. Subsidy is a payment reducing the buyer’s price below the seller’s price ------------------------------------------------------------------------------------------------------------ QUESTION 1 Demand: Q D =20-P Supply: Q S =-10+2P Suppose the market is in equilibrium. a. The government decides to set a tax of $3 per unit on the consumption of the good. What is the new equilibrium quantity? What price will consumers pay and what price will suppliers receive? What is the government revenue from the tax? What is the change in CS and PS, and what is the DWL? b. Answer all the questions of part d, assuming that the government grants a subsidy of $3 per unit to producers (instead of imposing a tax). c. Answer all questions of part d, assuming that the government decides to set a tax of 10 percent
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This note was uploaded on 08/08/2008 for the course ECON 301 taught by Professor Hansen during the Spring '08 term at University of Wisconsin.

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disc6 - DISCUSSION SECTION 6 Equilibrium: Qd=Qs -Quantity...

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