Answer to Question #138302 in Microeconomics for Akshaye

Question

. (a) The demand and supply equations for a good (X) are given by
Qd= 4000 - 25p and Qs = -2000 + 35P respectively, where P = price.
(i) Draw the demand and supply curves for good X on a graph.


(ii) Find the equilibrium price and quantity.
(iii) The government imposes a specific sales tax of R20 per unit on good X. Show the resulting effect on the graph and find the new equilibrium price and quantity.


(iv) Comment on the tax incidence (on the consumer and producer).


(v) Calculate the Price Elasticity of Demand when price rises from the original equilibrium at (ii) to the new equilibrium at (iii).

Answer 1

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