Question

en ns besturen en son Problem 9. Let D(p) = 200 - 5p be the demand function and S(p) = 5p be the supply function. (a) Draw these functions on a graph. (b) What are the equilibrium price and the equilibrium quantity? (c) The government imposes a quantity tax of $2 per unit of output. Draw the new supply curve. What is the new equilibrium price paid by the demanders? (d) What is the price received by suppliers, under the tax? (e) What is the equilibrium quantity under the tax? (f) What is the deadweight loss due to the tax? Shade the area of the deadweight loss.

Answer 1

s(P) = sp DCP) = 200-SP In Equilibrium DCP) = S(P) 200-SP = SP =sptsp 200 zlop P = 200 Substituting p into s(P) equation SCP) =s (20) =100 units. Price DWL o 20 40 60 80 90 120 140 160 180 200 220 Quantity

(6) (c) wew Equilibrium price - $20. quantity - 100 units. of tax = 42 per mit och output on seller New supply equation Q = S(P-2) Qs - SP-10 New Equilibrium New Qs = ad sp-10 agoo-SP spusp = 200 +10 lop 2210 P = 210 70 p =21 substituting pinto CD(P)) equation Q = 200-S (21) Q = 200-105 New Q = as unita Buyan pag = $21 substituting a inte old supply ay 25=5 P 95=5P P = 5 s sellor p =19 Receive undon Tax = $19.