Consider the following supply and demand functions of a certain product, where price (P) is in dollars
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Question:
Consider the following supply and demand functions of a certain product, where price (P) is in dollars and quantity (Q) is in units.
Q(d)=1000-P Q(s)=-1000+2P
(i) Find the inverse demand and supply functions.
(ii) Algebraically, find the equilibrium price and quantity.
(iii) Now, suppose an indirect sales tax of $50 per item is imposed on the product by the government. Algebraically, find the new equilibrium price and quantity.
(iv) Calculate the total sales tax revenue.
(v) Sketch “pre-tax” and “post-tax” (inverse) demand and supply functions
on the same graph. Show the equilibrium point with and without tax. (a clear sketch with all labels shown)
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