Answer to Question #298542 in Microeconomics for garg

Question

Qd = 180 – 2P

Qs = - 15 + P

If a tax of Rs 2/unit is imposed on sellers, calculate the effect on the price paid by buyers

and price received by sellers. Demonstrate that the effect would be unchanged if the tax

had been imposed on buyers instead of sellers. (2+2.75 +3)

Answer 1

$Q_d = 180 – 2P$

$P = \frac{180 – Q_d}{2}$

$Q_s = - 15 + P$

$P= Q_s+15$

Pretax equilibrium

$180 – 2P=- 15 + P$

$3P= 195$

P= 65

Q*= -15+ 65= 50

After Tax

$P= Q_s+17$

$\therefore Q+17= \frac{180 – Q}{2}$

$2Q+34=180-Q$

3Q= 146

Q= 49

Suppliers receive in pretax supply

P= 15+ 49

= 64

Consumers receive the following

$P = \frac{180 – 49}{2}= \frac{131}{2}= 65.5$

If tax is imposed on the consumers

$P_T= 90-0.5Q+2= 98-0.5Q$

$98-0.5Q= 15+Q$

1.5Q= 83

Q= 53.33

Price for consumers pretax supply

90- 0.5(53.33)= 63.5

Price for suppliers

P= 15+53= 78

NB: The conclusion is that whether the tax is imposed on the consumer or suppliers the effect is the same.