1. In a competitive market, the industry demand and supply curves are P= 200 - .

Question

1. In a competitive market, the industry demand and supply curves are P= 200 - .2Qd and P= 100 + .3Qs respectively. (a.) Find the market's equilibrium price and output. (b.) Suppose the government imposes a tax of $20 per unit of output on all firms in the industry. What effect does this have on the industry supply curve? Find the new competitive price and output. What portion of the tax has been passed on to consumers via a higher price? (c). Suppose a $20 per unit sales tax is imposed on consumers. What effect does this have on the industry demand curve? Find the new competitive price and output. Compare this answer to your findings in part (b).

Explanation / Answer

a) P = 200 - .2Qd and P = 100+ .3Qs such that 200 - .2Qd = 100+ .3Qs at equilibrium Qs=Qd .5Qs=100 Qs=200 so P=200 - .2Qd =200-.2*200=200-40=$160

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