Answer to Question #181680 in Microeconomics for Adam larson

Question

Supply and demand for a certain type of garden hose follow the equations below. The market is initially in equilibrium at p* = $32 and X* = 80. With a tax of $2.10, what price will buyers pay for garden hoses? (25 points)

Demand: X = 40,960p^-1.8                                    Supply: X = 56 + 0.75p

Answer 1

With a tax of $2.10 buyers will pay a price between $32 and $32.1 for garden hoses, because the sellers will bear only a part of tax imposed. The equilibrium quantity will decrease.