Microeconomics

posted by .

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 -

    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.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. supply and demand

    I'm looking for help on the third part of this question. I've included preceding questions/answers to show where I'm at. I don't know what to do next. Suppose that a market is described by the following supply and demand equations:
  2. Economic

    The market for Good X can be depicted with the following demand and supply equations: Demand: P = 50 – 1/2Q Supply: P = 1/3Q Where P is price per unit and Q represents quantity in units. Policy makers plan on imposing a $1 per unit …
  3. Microeconomics (full version)

    Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied at each price is twice what it was). a. What …
  4. economics

    Suppose the supply and demand for milk is described by the following equations: Qd=600-100P, Qs = -150+150P, where P is price in dollars . Qd is quantity demanded in millions of gallons per year. A. Create supply and demand tables …
  5. Microeconomics

    For this part of the assignment, we will focus on the demand curve. Draw the demand curve for the A-Phone. Explain how the graph, price, and quantity demanded will change if the following occurs: • There is an overall increase in …
  6. economics

    1. Suppose that the market of laptops is given by following supply and demand curves given below: Qd = 5000 − 3p Qs = 1000 + p. Answer the following questions on excel sheet using the above demand and supply equations. i) Take …
  7. Economics

    Hi, The demand for inflatable garden gnomes is given by P = 300 – 2Q, while the supply of is P= 100 + Q/2. How many garden gnomes are traded in equilibrium?
  8. economics

    Suppose the demand and supply for milk are described by the following equations: QD = 600 - 100P; QS = -150 + 150P, where P is price in dollars, Q D is quantity demanded in millions of gallons per year, and Q S is quantity supplied …
  9. Econ 220

    Suppose we have the following market supply and demand schedules for bicycles: Price Quantity Demanded Quantity Supplied $100 70 30 $200 60 40 $300 50 50 $400 40 60 $500 30 70 $600 20 80 a. Plot the supply curve and the demand curve …
  10. Economic Math

    Suppose the supply and demand for milk is described by the following equations: Qd=600-100P, Qs = -150+150P, where P is price in dollars . Qd is quantity demanded in millions of gallons per year. A. Create supply and demand tables …

More Similar Questions