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Demand and Supply Analysis

Assume that the market for microwaves is competitive. In this market, the inverse demand and supply equations are:

Inverse demand: P = 680 - 4Q^d

Inverse supply: P = 20 + 2Q^s

where Q represents the quantity of microwaves and P represents the price of a microwave. For now, assume that that there is no government intervention in the microwave market.

a. Calculate the equilibrium quantity and equilibrium price in the microwave market.

b. Draw the demand and supply curves for this market. On your graph be sure to label the y-intercept for both the demand and the supply curve. Be sure to also label the equilibrium quantity and price on your graph.

c. Assuming that the microwave market has reach equilibrium, what is the value of producer surplus in the microwave market?

d. Now suppose that the government decides to impose a $50 excise tax on the sellers of microwaves. After the tax has been imposed, how many microwaves are sold? What price do consumers pay for a microwave with the tax? What price do sellers receive with the tax? Who pays more of the excise tax - consumers or sellers?