Answer to Question #147343 in Microeconomics for Taslima Akter

Question

1. A good can be produced in a competitive industry at a cost of $10 per unit. There are 100 consumers are each willing to pay $12 each to consume a single unit of the good (additional units have no value to them.) What is the equilibrium price and quantity sold? The government imposes a tax of $1 on the good. What is the deadweight loss of this tax?

Answer 1

a) At equilibrium price, quantity demanded = quantity supplied = $\$12$

The quantity sold $= 100units$

b) There is no dead-weight loss of the tax. This is because the consumers continue to purchase 100 units. Hence, there is no distortion.