King Kanuta on Nutting Atoll collects taxes in kind. He demands that each of his
ID: 1216838 • Letter: K
Question
King Kanuta on Nutting Atoll collects taxes in kind. He demands that each of his subjects gives him 1 coconut for every coconut that they consume. The king puts all of the coconuts that he collects in a large pile and bums them. The supply of coconuts is given by S(p_s) = 100 ps, where p_s is the price received by suppliers. The demand for coconuts by the king's subjects (consumers) is given by D(p_d) = 1,500 - 100pd, where p_d is the price paid by consumers. In equilibrium, the price received by suppliers will be $6 $9 $7.50 $15 None of the above.Explanation / Answer
king's subject demand function is D(pd) = 1500 - 100pd
suppiler's function S(Ps) = 100ps
in equilibrium , D(pd) = S(Ps)
thus equilibrium price for coconut will be $7.5 and equilibrium quantity supplied will be 750 .
to quote the question again, it states that if a subject want 5 coconut for himself , he would have to purchase 10 coconuts and give 5 to the king. therefore, it costs 2Ps to one of the king's subjects to get an extra coconut for himself. thus ,
new demand curve considering kings tax in kind will be.= 3000 - 200Pd
also, when the price paid to supplier is PS, PD = 2Ps .
THEREFORE , Ps will be $7.5.
thus answer is C) $7.5
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