The demand function for Product X is Qd = 100 – 2P and its supply function is Qs = -20 + P where P is the price of Product X in dollars while Qd is the quantity demanded and Qs is the quantity supplied (both expressed in thousands of units).

 

Part 1

• What are the equilibrium price and quantity? 

• What is the consumer surplus in the market for Product X?

• What is the producer surplus in the market for Product X?

• What is the total surplus in the market for Product X? 

Part 2

 

Assume that the government decide to impose a tax of $6 on the price of each Product X that consumers purchase.

• What are the new equilibrium price and quantity? 

• What is the new consumer surplus in the market for Product X?

• What is the new producer surplus in the market for Product X? 

• What is the new total surplus in the market for Product X?

• Is the new market equilibrium efficient? Why? Why not? (

Answer rating: 100% (QA)

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