Question

Q: The demand and supply equations for a product are:

          Q^d= 300 — 6P and Q^s= -40 + 6P.

• Determine the market equilibrium and draw graphs.
• Suppose that the government decides to impose a flat tax of 10% on each unit sold. Show that the price that consumers pay would be the same if the government imposed a tax of Rs. 1.70 per unit sold. Draw graphs and explain.
• Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producers surplus, and deadweight loss

Answer 1

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