Question

Suppose you are an aide to a U.S. Senator who is concerned about the impact of a recent proposed excise tax on the welfare of her constituents. You explained to the Senator that the one way of measuring the impact of her constituents is to determine how the tax change affects the level of consumer surplus enjoyed by the constituents. Based on your arguments, you are given the go-ahead to conduct a formal analysis, and obtain the following estimates of demand and supply: Qd=500-5P and Qs=2P-60 Graph the supply and demand curve. What are the equilibrium quantity and equilibrium price? How much consumer surplus exists in this market?

Answer 1

The image below depicts the equilibrium price and quantity obtained from the estimated demand and supply and the consumer surplus that exists in this market.

$Dニク cleuma etustiom ato 2. euortion 今500-5P-2P-Go Se 10 Co surplus 8 0 3 0 Deumcn 100 ant at equil, bpWwn- \\and belo a) the de し× (100-0)×(100-89)--L x 100 x 20 2 /000 2.$