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

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

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.

Page1 / 2

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

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online