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Find the quantity of toothpaste

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Suppose the demand for toothpaste is Qd = 11- 2P while the supply of toothpaste is Qs = 6.5 + P where quantity is measured in millions of tubes of toothpaste and price in dollars per tube.

a. Find the quantity of toothpaste that maximizes economic surplus. What is the relationship between this quantity and the market equilibrium quantity?

b. Evaluate the consumer surplus created in the market for toothpaste when the market is in equilibrium.

c. If the government decides to tax toothpaste $1.50 a tube, what price do buyers pay for toothpaste? What price do sellers receive? What is the deadweight loss of the tax?

d. Suppose instead demand was perfectly inelastic, what would be the incidence of the tax in this case? What would be the deadweight loss of the tax in this case?

Reference no: EM13161421

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