Q3.Suppose that a market for tires is described by the following supply and demand equations:

Q^S = – 500 + 15P

Q^D = 700 –P

a. Solve for the equilibrium price and the equilibrium quantity.

b. Suppose that a tax of $5 is placed on buyers, so the new demand equation is Q^D = 700 – (P+5)

Solve for the new equilibrium. Calculate the price received by sellers, the price paid by buyers, and the quantity sold?

c. Tax revenue is $5 × Q. Use your answer to part (b) to solve for tax.

d. The deadweight loss of a tax is the area of the triangle between the supply and demand curves. Recalling that the area of a triangle is ½ × base × height, solve for deadweight loss caused by this $5 tax.

Answer rating: 100% (QA)

3a For equilibrium Put AsQd ie 50015P700P 16P1200 or P12001675 Thus ... View the full answer