Question

1. Suppose the demand and supply of chickens is given by:

QD = 22,500 – 250P

QS = 5,000 + 100P

c. Suppose a tax of $10 per chicken in imposed. What will be the new equilibrium price (net of tax) and quantity? What is the economic incidence of this tax?

Answer 1

after the introduction of a tax of $ 10, the equilibrium price of the product will increase, and the volume and revenue from sales will decrease Qs(P)→ Qs(P − 10);

Qd$=$ Qs;

$22 500 - 250P=5000 + 100(P - 10); 22 500 - 250P=5000 + 100 P -1000;$

P$=$ $ $52.9$ ;

new equilibrium price $=52.9-10=$ $ $42.9$

Quantity$= 22500-250×52.9 =$ $9275$ chickens;

tax amount$=10 ×9275=$$ $92 750$

sales revenue$= 42.9 × 9 275=$$ $397597.5$

for the sale of chickens, the state will receive a profit of tax in the amount of $ 92 750, and the income of producers will decrease.