Consider a market with a demand curve-supply curve

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1. Consider a market with a demand curve of P=10-Q and a supply curve of P=Q. Before the imposition of a tax, equilibrium quantity is 5, and equilibrium price is $5 (verify this). If a tax of $5 per unit is placed on this market, quantity traded falls to 2.5 units. What is the tax revenue generated?

2. Consider a market with a demand curve of P=10-Q and a supply curve of P=Q. Before the imposition of a tax, equilibrium quantity is 5, and equilibrium price is $5 (verify this). If a tax of $5 per unit is placed on this market, quantity traded falls to 2.5 units. Calculate the deadweight loss created by the imposition of this tax. Hint: a carefully drawn diagram will help you a lot.

Reference no: EM13772524

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