Posted by **Diane** on Monday, July 28, 2008 at 5:25pm.

This is a 5 part question; (a-e)The question reads: Suppose that a market is described by the following supply & demand equations: Qs=2P & Qd=300-P

a) Solve for the equalibrium price & quantity. (I think I understand this process.)

b)Suppose that a tax of T is placed on buyers so the new demand equation is:

Qd=300-(P+T). Solve for new equalib. What happens to the price received by seller, the price paid by buyers, & qty sold?

c)Tax revenue is T x Q. Use your answer to part (b) to solve for tax revenue as a function of T.

d) Graph the DWL

e) Gov't levies a tax on good of $200/unit. Is this a good policy? Why/Why not? Can you propose a better policy?

- Microeconomics -
**economyst**, Tuesday, July 29, 2008 at 9:39am
a) set Qs=Qd and solve for P.

b) Same, set Qs=Qd and solve for P. Buyer pays P+T, seller gets P. (I get P=100-T/3)

c) Let P^ and Q^ be the equilibrium price and quantity. TR=T*Q^. From supply Q^=2P^. Substitute. TR=T*2P^ = T*2*(100-T/3)= 200T-2T^2/3

d) dwl is dead weight loss, and is represented by the little triangle below demand above supply and to the right of the equilibrium Q.

e) In general, whether a tax is a good policy or not depends on how it compares to the other policy choices. However, this $200 tax is a BAD policy because the government could raise the same amount of money with a lower tax rate. Use calculus on the equation from c) to find the revenue maximizing tax rate. TR' = 200 - 4T/3. You have a maxima at T=150.

## Answer this Question

## Related Questions

- supply and demand - I'm looking for help on the third part of this question. I'...
- economics - Suppose the supply and demand for milk is described by the following...
- Economic - The market for Good X can be depicted with the following demand and ...
- economics - 1. Suppose that the market of laptops is given by following supply ...
- Economics - Hi, The demand for inflatable garden gnomes is given by P = 300 – 2Q...
- Microeconomics - For this part of the assignment, we will focus on the demand ...
- economics - Suppose the demand and supply for milk are described by the ...
- Microeconomics (full version) - Pharmaceutical drugs have an inelastic demand, ...
- Microeconomics - Suppose Intel Inc. and other chip makers utilize a new ...
- Finite Math - The quantity demanded each month of russo Espresso Makers is 250 ...