Answer to Question #256049 in Microeconomics for Hailly

Question

1.  After levying tax on consumers, new supply and demand curve given as Qs=P. Qd=100-(P+T). (Qd stands for quantity demanded, Qs quantity supplies, P is price, T is tax on consumers.

What is unit tax amount T when maximizing government tax revenue?  

 

Answer 1

When maximizing government tax revenue, the demand and supply should be at equilibrium

At equilibrium quantity supplied equal quantity demanded $Q_s = Q_d$

Therefore:

$P = 100 -(P + T)$

$P= 100 - P - T$

$T = 100 - 2P$

$\therefore$ The unit tax amount is $T = 100 -2P$