Question

Suppose that in a perfectly competitive market, demand is given by Q=59.0-P and supply is given...

Suppose that in a perfectly competitive market, demand is given by Q=59.0-P and supply is given by Q=P-28.0. The government imposes a per-unit excise tax of $1 on the good. What is the dead-weight loss? No units, no rounding.

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Answer

the equilibrium before tax is at Qd=Qs

59-P=P-28

2P=87

P=43.5

Q=59-43.5

Q=15.5

========

after-tax the supply curve is:

Q=P-28

P=Q+28

adding tax

P=Q+28+1=Q+29

P=Q+29

Q=P-29

now the equilibrium at new supply =Qd

P-29+59-P

2P=88

P=44=price consumer pay

Price producer receives =P-tax=44-1=43

Q=59-44=15

==========

deadweight loss =0.5*tax per unit * change in quantity

=0.5*1*(15.5-15)

=$0.25

the deadweight loss is 0.25

===============

Add a comment
Know the answer?
Add Answer to:
Suppose that in a perfectly competitive market, demand is given by Q=59.0-P and supply is given...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT