Answer to Question #285164 in Microeconomics for Fazi

Question

Suppose a market of T-Shirts can be illustrated by following equations,

demand P = 15-0.5 Q

supply P= 10+0.5Q

Using these equation, determine the equilibrium price and quantity of this market.

Now, suppose that a tax of $4 is imposed on the supplier of this market. What will be the new quantity available in the market? What will be the price paid by consumer? What will be the price received by producer? Draw a diagram to illustrate the market.

Answer 1

The equilibrium price and quantity of this market are:

Qd = Qs and Pd = Ps,

15 - 0.5Q = 10 + 0.5Q,

Q = 5 units,

P = 10 + 0.5×5 = 12.5.

If a tax of $4 is imposed on the supplier of this market, then the new quantity available in the market will decrease, the price paid by consumer will increase, the price received by producer will decrease.