Question

and market supply is given by the equation pop Suppose per unit tax is imposed that reduces the amber of units bought and sold in the market to 25s What is the size of the tax, and who bears the greater burden of the buyers or sellers 120 point

Answer 1

The market demand is given as,

Qd = 60 - P

The market supply is given as,

Qs = P

In equilibrium,

Qd = Qs

60 - P = P

2P = 60

P = $30

Put this in market demand or market supply equation to get,

Q = 30 units

This will be the equilibrium price and equilibrium quantity in the market.

Provided that there is a per-unit tax that reduces the number of goods bought and sold in the market to 25 units.

On the demand side,

Qd = 60 - P

New demand will be,

25 = 60 - P

P = 60 - 25

P = $35

This will be the price charged to the customers.

On the supply side,

Qs = P

New supply,

P = $25

This will be the price faced by the suppliers.

The difference between these prices is the size of the tax, which is

T = 35 - 25 = $10

The per-unit tax is $10 per unit sold.

And from the prices faced by the buyers and sellers, it can be seen that the burden is shared equally among both.