Demand:𝒑𝒅 =𝟕𝟐−𝟏.𝟐𝟓∗𝒒𝒅
Supply:𝒑𝒔 =𝟏𝟐.𝟓+𝟐.𝟐𝟓∗𝒒𝒔
Imagine now that the government imposes a tax of $𝟒. 𝟓 on the producers of hammers.
a) What is the new equilibrium quantity?
At equilibrium, "p_{d}" ="q_{s}" and "q_{d}" ="q_{s}" , demand= supply
71 - 1.25"q_{d}" = 12.5 + 2.25"q_{s}"
"\\frac{3.5q}{3.5}" = "\\frac{59.5}{3.5}"
q = 17 which is the equilibrium quantity
"p_{d}" = 72 - ( "1.25\\times17)"
"p_{d}" =$ 50.75 (equilibrium price)
Imposition of tax will increase the equilibrium price and thereafter the new price will be;
p= $50.75+$4.5 =$ 55.25
the demand function is,"p_{d}" = 72-1.25"q_{d}"
Replacing pd with the new price we have,
55.25 = 72 - 1.25 "q_{d}"
"q_{d}" = $13.4(new equilibrium quantity)
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