Quiz 1. Taxes Ans.

Quiz 1. Taxes Ans. - Q : 120 - Q** = 0.5 Q** + 15 Q** = 70....

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ECON 201 Shomu Banerjee TAX QUIZ ANSWERS The market for a product has the following inverse demand and supply functions P d = 120 - Q d P s = 0.5 Q s . (a) Find the equilibrium price P* and quantity Q* . Set P d = P s and solve for Q : 120 - Q* = 0.5 Q* Q* = 80. Substitute in either equation to get P* = $40. (b) Suppose the state government levies a tax of $15 on each unit sold, imposed on the sellers. (i) Find the prices that consumers pay ( P d ) and the producers receive ( P s ) and the new quantity traded in the market, Q **. Set P d = P s + t and solve for
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Unformatted text preview: Q : 120 - Q** = 0.5 Q** + 15 Q** = 70. Substitute in each equation to get P D = $50 and P S = $35. (ii) How much money does the state government collect as tax revenue? Q** x t = 70 x $15 = $1050. (iii) Calculate much of the tax burden falls on the producers and how much on the consumers. The per-unit burden on consumers is $50-$40 = $10. The per-unit burden on producers is $40-$35 = $5. Multiply each number by Q** to get the total burden: $700 and $350....
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