Posted by Diane on Monday, July 28, 2008 at 5:25pm.
This is a 5 part question; (ae)The question reads: Suppose that a market is described by the following supply & demand equations: Qs=2P & Qd=300P
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=100T/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*(100T/3)= 200T2T^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 Math  Suppose the supply and demand for milk is described by the ...
 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 ...
 Microeconomics (full version)  Pharmaceutical drugs have an inelastic demand, ...
 economics  Suppose the demand and supply for milk are described by the ...
 Econ 220  Suppose we have the following market supply and demand schedules for...
More Related Questions