Suppose the market has following demand and supply equations
Demand Qd: 380-10p
Supply Qs: 80 + 5p
p is the price
a) calculate the price at which market is in equilibrium
b) now if the government imposes a fixed tax of r on the suppliers, what will be the price buyers pay and sellers receive, quantity, and government revenue from tax (as function of r). What tax level maximizes the revenue the government collects from tax?
(a) At equilibrium Qd=Qs
(b)
Price the suppliers will receive and quantity that will be supplied is calculated below
Supply equition after tax
The quantity supplied will be
The price that suppliers will receive will be
Price that consumers will pay is given by
Government revenue from tax
2/3
Tax level that maxmizes government revenue
Tax between 0% and 100%
Comments
Leave a comment