Reference no: EM13297532
Suppose the market demand function is given by D(PD) =60 − PD and S(PS) = 2PS.
a. (2 points) Find the market equilibrium without taxes (that is,when PD = PS).
b. (3 points) Suppose now the supplier is required to play a per unit tax of t = 3. Draw a graph to show the change in the supply curve. Find the equilibrium quantity and prices, q ∗ , P ∗ S , and P ∗
D.How much of the per unit tax is passed on to the consumer?
(Hint: in this case, the vertical axis is the demand price.)
c. (2 points) Suppose now the demander is required to play a per unit tax of t = 3. Draw a graph to show the change in the demand curve. Find the equilibrium quantity and prices, q∗, P∗S,and P∗
D. (Hint: in this case, the vertical axis is the supply price.)
Compare your answers in parts b and c.
d. (5 points) Calculate the change in consumer’s surplus, change in producer’s surplus, tax revenue, and deadweight loss as a result of the policy change. Illustrate them on a graph.
Attachment:- 110731_1_301hwk4.pdf
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