Suppose that the demand curve and supply functions are qD = 3005p and qS = 100+20p, respectively.
Question:
Suppose that the demand curve and supply functions are qD = 300−5p and qS = 100+20p, respectively.
(a) On the same graph, draw the demand and supply curves with price on the vertical axis.
(b) What is the quantity and price in the equilibrium?
(c) Calculate consumer surplus and producer surplus.
(d) Suppose the government implements a $5 dollar per unit sales tax.
i. Calculate the new quantity and the price paid by the consumer.
ii. Calculate the consumer surplus, producer surplus, tax revenue, and deadweight loss.
iii. What share of the tax is passed on to the consumer and what share of the tax is passed on to the producer? iv. Graph the taxed equilibrium on a new graph.
(e) Recalculate parts a through d but now suppose that quantity supplied is perfectly inelastic. Specifically, suppose that qS = 100.
(f) Recalculate parts a through d but now suppose that quantity demanded is perfectly inelastic. Specifically, suppose that qD = 400
