wyk-october18-key

wyk-october18-key - Econ 2020 Dr. Duffy Homework III....

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Econ 2020 Name_______________________ Dr. Duffy Homework III. October 18 Row _______________________ The semester double! 8 points total + 1 bonus. Starting from the given supply and demand curves, calculate the impact of a sales tax of $2.00 per item. 2 4 6 8 10 12 14 4 8 12 16 20 24 S D Q P $ S' a) What is total economic surplus before the tax is imposed? (10-2)*8*1/2 = 32 b) Draw the new supply curve and find the new equilibrium price and quantity. Hint: Original inverse demand Price = 10 – ½ Q Original inverse supply Price = 2 + ½ Q 10 – ½ Q = 2 + ½ Q Solving Q = 8 and Price = 6 (as shown above). With a tax of $2 per item, the new inverse supply Price = 4 + ½ Q Using the new inverse supply and the old inverse demand, you can solve for the new P and Q. New price ________7_________ New quantity ________6____________ c) What is market economic surplus (consumer and producer surplus) after the tax is imposed? (10-4)*6 * ½
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This note was uploaded on 11/15/2011 for the course AGEC 7100 taught by Professor Duffy,p during the Fall '08 term at Auburn University.

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wyk-october18-key - Econ 2020 Dr. Duffy Homework III....

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