Question

4 Shoes The linear demand and supply schedules in the market for shoes are given in the following table. Prices Demand Supply $1.00 1.0000 $1.30 9000 $2.000 0 S250 700 100 S3.001 500 $4.00 400 400 300 500 $5.00 200 600 600 59330 a Find the initial equilibrium price and quantity (a) P = (b) Q = b Suppose the government imposes a new $1.00/unit tax on the producers of shoes. Find the new equilibrium. (b) P = (e) Ps e Senator Jones has proposed legislation that would change the shoe tax by switching it from the seller to the buyer. If the bill passes, what will be the new equilibrium? (b) PD = (e) p = d Will consumers prefer the original bill, will they prefer the Jones bill, or will they be indifferent between the two bills? e Will shoe producers prefer the original bill, will they prefer the Jones bill, or will they be indifferent between the two bills?

Answer 1

A) Equilibrium is achieved when demand=supply

initial equilibrium price=4 and quantity=400

B) when tax is imposed on seller, then equilibrium quantity=350 and

Pd=4.5. Consumer pays

ps=3.5 producer receives

c)remains same as B.

Q=350 and Pd=4.5 and Ps=3.5

d)Indifferent because what consumer pays depends on the elasticity of demand and supply. Not on the legal imposition of taxes

e)Indifferent because what producer receives depends on the elasticity of demand and supply. Not on the legal imposition of taxes