2. Assume demand is given by Qd= 250-2P and supply is given by Qs= -25 + 3.5P.

A. Sketch the market indicating the reservation price and minimum selling price.

B. Determine the equilibrium price and quantity and show this on your graph.

C. Now assume the government levies a $5 excise tax on the buyer. Determine the new demand equation and the new price paid by the buyer including the tax. Show this on your graph in part A.

D. Re-sketch your original demand, supply and equilibrium here before the tax. Now, place the $5 tax on the seller instead and determine the new supply equation and the price in the market after the tax. Show this on your graph.

Answer rating: 100% (QA)

A Sketching the market with reservation price and minimum selling price Price Supply Qs Reservation ... View the full answer