A perfectly competitive market is characterized by supply and demand as: Qd = 200 – 2Pd  Qs = ( 10 + 5Ps), when Ps  2

 

Qs=0, when Ps < 2

a. What is the equilibrium price and quantity in this market if there is no tax?

b. Suppose the government imposes a tax of $7 on this market. What is the new market quantity? What happens to the price paid by buyers (Pd ) and received by sellers (Ps )?

c. How does this tax affect Consumer and Producer surplus? You must provide both a numerical answer and discussion.

d. How much revenue does this tax generate for the government?

e. What is the overall impact of this tax on the welfare of the market? You must provide both a numerical answer and discussion.

Answer rating: 100% (QA)

a To find the equilibrium price and quantity in this market without a tax we need to set the quantity demanded Qd equal to the quantity supplied Qs and solve for the price P Qd Qs 200 2Pd 10 5Ps Simpl... View the full answer