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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?
(102)*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?
(104)*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.
 Fall '08
 Duffy,P

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