Question

To many upscale homeowners, no other flooring offers the warmth, beauty, and value of wood. New technology in stains and finishes call for regular cleaning that takes little more than sweeping and/or vacuuming, with occasional use of a professional wood floor cleaning product. Wood floors are also ecologically friendly because wood is both renewable and recyclable. Buyers looking for traditional oak, rustic pine, trendy mahogany, or bamboo can choose from a wide assortment.
At the wholesale level, wood flooring is a commodity-like product sold with rigid product specifications. Price competition is ferocious among hundreds of domestic manufacturers and importers. Assume that market supply and demand conditions for mahogany wood flooring are:
QS = -10 + 2P (Market Supply)
QD = 320 - 4P (Market Demand)
Where Q is output in square yards of floor covering (000), and P is the market price per square yard.
A. Graph and calculate the equilibrium price/output solution before and after imposition of a $9 per unit tax.
B. Calculate the deadweight loss to taxation caused by imposition of the $9 per unit tax. How much of this deadweight loss was suffered by consumers versus producers? Explain.



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  • CreatedFebruary 13, 2015
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