13. The demand and supply for catnip are given by the following tables: Demand S

Question

13. The demand and supply for catnip are given by the following tables: Demand Supply Quantity Price $1.50lb 2.00 2.50 3.00 3.50 4.00 Quantity 10 lb Price $1.50/lb 2.00 2.50 3.00 3.50 4.00 4 lb 10 What quantity is sold in equilibrium, and at what price? a. Suppose in problem 13 that a sales tax of $2 per pound is imposed on 14. catnip. What is the new market price of catnip? What price do demanders actually pay? What is the new equilibrium quantity? b. Suppose instead that an excise tax of $2 per pound is imposed on catnip What is the new market price of catnip? What price do suppliers actually collect? What is the new equilibrium quantity? c. As a consumer of catnip, would you prefer to live in a world with a sales tax or with an excise tax? How about if you were a supplier of catnip?

Explanation / Answer

13. In equilibrium quantity demanded = quantity supplied. Here equilibrium occurs when price = $3, i.e. when quantity demanded = quantity supplied = 7

Answer: Equilibrium price = $3 and equilibrium quantity = 7 units.

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