A) The market demand for pizza is given by Q(p)=80-5p, the supply is Qs(p) = 7p-

Question

A) The market demand for pizza is given by Q(p)=80-5p, the supply is Qs(p) = 7p-42. Find the price elasticity of demand at the market equilibrium.
B) suppose the city imposes a $1 tax, how much of tax will be paid by the consumer? A) The market demand for pizza is given by Q(p)=80-5p, the supply is Qs(p) = 7p-42. Find the price elasticity of demand at the market equilibrium.
B) suppose the city imposes a $1 tax, how much of tax will be paid by the consumer?
B) suppose the city imposes a $1 tax, how much of tax will be paid by the consumer?

Explanation / Answer

A . the price elasticity of demand is the responsiveness of quantity demanded to the price. Mathematically it is demonstrated as dQ/dP

Q(d) = 80-5p

so dQ/dp is -5 which is the price elasticity of demand

B. When the govt imposes a tax of $1 the supplier will pass a fraction of it in a way that the customer responsiveness does not change. Therefore the new supplier function shall be 7(p-1)-42 = 7p-49

with this we try finding out the equilibrium price

7p-49=80-5p

so p = 10.75

when we compare this with the equilibrium scenario without tax ( 7p-42 = 80 - 5p => p = 10.17)

henxr the customer has had to pay 0.58$ in taxes

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