Q7. The Demand for Ice cream is given by QD = 20-2P, measured in gallons of...

Question

Question

Q7. The Demand for Ice cream is given by Q^D = 20-2P, measured in gallons of ice cream. The supply of ice cream is given by Q^S= 4P-10.

Graph the supply and demand curve and find the equilibrium price and quantity of ice cream.
Suppose the government legislates a $1 tax on a gallon of ice cream, to be remitted by the seller. Plot this change on the graph and label it. Does the demand/supply increase or decrease a result of the tax?
How much tax revenue did government raise?
How much deadweight loss does the tax create?

Answer 1

Answer #1

A). supply (10,5) demand 10 Q 20

B) supply curve shifts upwards by 1

So supply decrease, no effect on demand curve

C) tax revenue = tax* new Q

= 1*8.67

= $ 8.667

d) DWL

= .5*(10-8.67)*(5.67-4.67)

= .5*1.33*1

= .665

allo curve New supply (8.67, 5.67) (10,5) DWL

Answer 2

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