Answers to selected questions in Chapter 21

# Answers to selected - Answers to selected questions in Chapter 21 6(i At equilibrium Qd = Qs Before tax equate demand and supply and obtain Qd = 50

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Answers to selected questions in Chapter 21 6 (i) At equilibrium Q d = Q s . Before tax, equate demand and supply and obtain Q d = 50 – 4p = 30. The market clearing price is \$5. (ii) After a tax of \$4 per unit is imposed on suppliers, they still supply 30 units (supply is perfectly inelastic). Demand is unchanged. So consumers pay \$5 and purchase 30 units. But producers receive only \$1 after paying the tax. Producers bear all the costs because supply is completely inelastic. Suppose that the tax is levied on consumers: Q d = 50 – 4(P s +4) = 30. It follows that 4P s = 4, so P s = 1. P c = 5 (as before). (iii) The tax raises 30 × \$4 = \$120 revenue. 7 (i) In equilibrium, Q d = Q s , 80 – 3P d = 40 + P s . But P d = P s. Therefore, the 4P = 40. The pre-tax price is \$10 and 50 units are supplied. (ii) Post–tax, 80 – 3P d = 40 + 1(P-2), where the tax is placed on the producer. The post-tax demand price is \$10.5 and the price that producers receive after tax is \$8.5. Consumers purchase 48.5 units.

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## This note was uploaded on 12/02/2009 for the course ECOS a taught by Professor A during the Three '09 term at University of Sydney.

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Answers to selected - Answers to selected questions in Chapter 21 6(i At equilibrium Qd = Qs Before tax equate demand and supply and obtain Qd = 50

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