Question

Consider a market for apple with the following supply and demand. Qs = 2 + p Qd = 20 p (a) What is equilibrium supply and demand in this market? The government imposed ad-valorem tax of 20% tax rate which is collected from the seller. We want to calculate buyerís burden, sellerís burden, and total tax revenue. Answer the following questions in steps to calculate them. (b) Suppose the tax rate is t. When market price is p, what is the perceived price for sellers after paying tax? Write the supply function (quantity supplied as a function of market price p). (c) Calculate the equilibrium price and quantity after this tax is imposed. These are functions of t. (d) What is sellerís price and buyerís price if the tax rate is 20%? What are sellerís burden and buyerís burden? What is the total tax revenue? (e) The government wants to impose unit tax collected from buyers instead of the tax scheme discussed above. To have the same e§ect, how much unit tax should be imposed

Answer 1