QUESTION 6 QD-187- 2P and Qs--36365P before a tax of $2 is added to each unit of

Question

QUESTION 6 QD-187- 2P and Qs--36365P before a tax of $2 is added to each unit of the good. What is the consumer surplus after taxes? (Hint: Because suppliers make their decision based on how much they receive after tax, the new supply function is: QS =-363 + 65(.2) } ROUND TO THE NEAREST CENT QUESTION 7 QD-63-6P and Qs-371 72P before a tax of $2 is added to each unit of the good. What is the dead weight loss after taxes? (Hint: Because suppliers make their decision based on how much they receive after tax, the new supply function is: QS =-371 + 72(P-2) } ROUND TO THE NEAREST CENT

Explanation / Answer

SOLUTION:(6)

Equating Qd = Qs

187 - 2P = -363+65P

67P = 550

P = 8.2

Q = 187-2P=187-2*8.2=170.58

Assuming the excise tax is imposed on sellers:

The tax will increase cost for suppliers & supply curve will shift upward by amount of the tax.

Qs =-363+65P

So, P = 0.0154Qs + 5.58

New P (after tax) = 0.0154Qs + 7.58

Or, Qs = -492+65P

Equating with Qd (unchanged):

187 - 2P = -492+65P

67P = 679

P = 10.13

Q = 187 - (2x 10.13) = 166.73

So price has increased & quantity has decreased.

New consumper surplus = (1/2) x (100 - 10.13) x 166.73 = 7492.01

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.