Question

suppose the demand for Frisbees is given by
Q=100-2p
and the supply by
Q=20-6p
a)what will be the equilibrium price and quantities for Frisbees?
b)suppose the government levies a tax of rs:4 per frisbee.Now what will the equilibrium quantity the price consumers will pay & the price firm will receive?
c)how would your answer to part a &b change if the supply were insteadQ=70+P

Answer 1

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Answer on Question #73425 -Economics - Macroeconomics

Suppose the demand for Frisbees is given by $Q = 100 - 2p$ and the supply by $Q = 20 + 6p$

a) what will be the equilibrium price and quantities for Frisbees?

b) suppose the government levies a tax of rs:4 per Frisbee. Now what will the equilibrium quantity the price consumers will pay & the price firm will receive?

c) how would your answer to part a &b change if the supply were instead $Q = 70 + P$

Answer.

a) Equilibrium price and quantity is calculated from equation

$$\begin{array}{l} 100 - 2P = 20 + 6P \\ 80 = 8P \\ P = 10, Q = 80 \\ \end{array}$$

b)

Implementing of tax shifts the supply curve in rs:4 upper. So, if previous equation was $P = (Q - 20)/6$, new supply equation is $P = (Q - 20)/6 + 4$, or $(P - 4)*6 = Q - 20$, $Q = 6P - 4$

Then,

$$\begin{array}{l} 100 - 2P = 6P - 4 \\ 104 = 8P \\ P = 13 \quad Q = 74 \\ \end{array}$$

Equilibrium quantity is 74, the price that consumers will pay is rs13, the price that firm will receive is $13 - 4 = 9$.

c) $100 - 2P = 70 + P$

$$\begin{array}{l} 30 = 3P \\ P = 10, Q = 80 \\ \end{array}$$

And, implementing of tax shifts the supply curve in rs:4 upper. So, if previous equation was $P = Q - 70$, new supply equation is $P = Q - 70 + 4 = Q - 66$, or $Q = P + 66$

Then,

$$\begin{array}{l} 100 - 2P = P + 66 \\ 34 = 3P \\ P = 11.3 \quad Q = 77 \\ \end{array}$$

Equilibrium quantity is 77, the price that consumers will pay is rs11.3, the price that firm will receive is $11.33 - 4 = 7.33$.

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