Assume that the demand for CDs is represented by the equation P=22-0.25Q and the

Question

Assume that the demand for CDs is represented by the equation P=22-0.25Q and the supply by the equation P=6+0.75Q.

a) what is the equilibrium price and quantity? what is the total welfare?

b) assume that the government taxes the record companies $4. what is the equation of the new supply curve?

c) what is the new equilibrium price in the market? what price do consumers pay for CDs? at what price do suppliers produce CDs? how many CDs are transacted?

d) what is the governments revenue from implementing the tax?

e) what is the dead weight loss and welfare with the tax? did the tax increase or decrease welfare relative to question A? explain and show.

an answeer to this problem would be greatly appreciated!!!!!!!!!!

Explanation / Answer

22-0.25Q = 6+0.75Q

Q = 16 units is the equilibrium quantity

P = 6+0.75Q

P = $18 is the equilibrium price

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