Answer to Question #271591 in Microeconomics for musti

Question

Demand is described by the equation: Qd = 200-5P, and supply: Qs = 35P-200. The government introduced a per-product tax on the producer in the amount of t per unit of goods. As a result, the equilibrium quantity (q) decreased by 17,5%. Find the amount of tax (t)

Answer 1

At equilibrium Qd=Qs

$200-5P = 35P -200 \\ 400 = 40P \\ P = 10 \\ Q = 200 -5 \times 10 = 150$

New $Q^* = (150 - 150 \times 0.175) = 150 -26.25 = 123.75$

$123.75 = 200 -5P^* \\ 5P^* = 76.25 \\ P^* = 15.25$

New price = 15.25

The amount of tax

ΔP = 15.25-10=5.25